-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcnnmxQJSJLpRIdKtc2/LKMs05vZfTmfknQhyVuLfVRV9PukX2f5j6N0bq9goamQ tzNfuwEg4HSqqAZpF67+qA== 0000902664-07-003263.txt : 20071113 0000902664-07-003263.hdr.sgml : 20071112 20071113145935 ACCESSION NUMBER: 0000902664-07-003263 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20071113 DATE AS OF CHANGE: 20071113 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: EARTH BIOFUELS INC CENTRAL INDEX KEY: 0001268471 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 710915825 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-80984 FILM NUMBER: 071237319 BUSINESS ADDRESS: STREET 1: 3001 KNOX STREET STREET 2: SUITE 403 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 214 389 9800 MAIL ADDRESS: STREET 1: 3001 KNOX STREET STREET 2: SUITE 403 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: MEADOWS SPRINGS INC DATE OF NAME CHANGE: 20031029 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SANDELL ASSET MANAGEMENT CORP CENTRAL INDEX KEY: 0001140474 IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2126035700 MAIL ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D/A 1 sc13da.txt EARTH BIOFUELS, INC.
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------------- SCHEDULE 13D (Rule 13d-102) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) Under the Securities Exchange Act of 1934 (Amendment No. 2) Earth Biofuels, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock - -------------------------------------------------------------------------------- (Title of Class of Securities) 27031F102 - -------------------------------------------------------------------------------- (CUSIP Number) Sandell Asset Management Corp. 40 West 57th Street 26th Floor New York, NY 10019 Attention: Richard Gashler, General Counsel 212-603-5700 With a Copy to: Eleazer Klein, Esq. Schulte Roth & Zabel LLP 919 Third Avenue New York, NY 10019 212-756-2000 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) November 8, 2007 ------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. - -------------------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). (Continued on following pages) (Page 1 of 11 Pages) - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 2 of 11 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg Master Investments Ltd. - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS WC - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 1.249%* - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ----------------------------- * See Items 4 and 5(a) below. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 3 of 11 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Sandell Asset Management Corp. - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 1.249%* - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ----------------------------- * See Items 4 and 5(a) below. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 4 of 11 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg International Limited - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 1.249%* - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ----------------------------- * See Items 4 and 5(a) below. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 5 of 11 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg International Holdings Limited - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) (1) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 1.249%* - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ----------------------------- * See Items 4 and 5(a) below. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 6 of 11 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Thomas E. Sandell - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Sweden - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) (2) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,111,628 shares issuable upon exercise of Warrants or conversion of Notes (see Item 5(a) below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 1.249%* - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN - ------------- ----------------------------------------------------------------- - ----------------------------- * See Items 4 and 5(a) below. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 7 of 11 Pages - ---------------------------- ---------------------------- The Schedule 13D filed on July 13, 2007 by Castlerigg Master Investments Ltd., a British Virgin Islands company ("Castlerigg Master Investments"); Sandell Asset Management Corp., a Cayman Islands exempted company ("SAMC"); Castlerigg International Limited, a British Virgin Islands company ("Castlerigg International"); Castlerigg International Holdings Limited, a British Virgin Islands company ("Castlerigg Holdings"); and Thomas E. Sandell ("Sandell") (collectively, the "Reporting Persons") with respect to the shares of Common Stock, par value $0.001 per share (the "Common Stock") of Earth Biofuels, Inc., a Delaware corporation (the "Issuer"), as amended by Amendment No. 1 filed on October 15, 2007 is hereby amended by this Amendment No. 2. This is the final amendment to this Schedule 13D and an exit filing for the Reporting Persons. ITEM 4. PURPOSE OF TRANSACTION Item 4 of the Schedule 13D is amended by the addition of the following: Since the commencement of the involuntary bankruptcy proceeding against the Issuer pursuant to Title 11 of the United States Code in the United States Bankruptcy Court of the District of Delaware, Case No. 07-10928 (CSS)(the "Bankruptcy Case"), the Issuer has engaged in discussions with each of Castlerigg Master Investments; Evolution Master Fund Ltd. SPC, Segregated Portfolio M; Capital Ventures International; Radcliffe SPC Ltd. for and on behalf of the Class A Convertible Crossover Segregated Portfolio; YA Global Investments, L.P.; Cranshire Capital, LP; Portside Growth and Opportunity Fund and Kings Road Investments Ltd. (collectively, the "Transaction Noteholders") regarding the terms of a possible restructuring. The Reporting Persons wish to explore the possibility of an out-of-court restructuring and modification of the existing rights and obligations under the Original Bridge Securities Purchase Agreement, the Original Bridge Registration Rights Agreement, the Second Bridge Securities Purchase Agreement, the Second Bridge Registration Rights Agreement, the Securities Purchase Agreement, the Registration Rights Agreement, Notes and Warrants (collectively, the "Transaction Documents") with the Issuer and the Issuer's subsidiaries through one or more definitive documents to be negotiated during the course of the next six to twelve months (the "Restructuring Transaction") in an effort to maximize the recovery under the Notes. The Restructuring Transaction is contemplated to require the parties involved, including the Issuer and the Reporting Persons, to enter into the following definitive documents (collectively, the "Restructuring Transaction Documents"): (1) An Interim Restructuring Agreement by and among the Issuer, the Transaction Noteholders, Dennis McLaughlin, the Issuer's CEO ("McLaughlin"), and the Issuer's subsidiaries listed therein on Schedule A ("Interim Restructuring Agreement"), by which (i) the Issuer and certain of the Transaction Noteholders consent to the dismissal of the Bankruptcy Case; (ii) the parties agree to execute, as applicable, the Release, the Confessions of Judgment, and the Subsidiary Guaranty (each as defined below, and collectively, the "Collateral Documents"); (iii) each Transaction Noteholder that becomes a party to the Interim Restructuring Agreement agrees, subject to the terms of the Interim Restructuring Agreement and the Collateral Documents, to forbear from exercising or enforcing any contractual, legal or equitable rights or remedies arising under or related to the Collateral Documents until the period specified therein; and (iv) each Transaction Noteholder that becomes a party to the Interim Restructuring Agreement agrees to waive the economic anti-dilution provisions under the Notes, Warrants and Initial Bridge Warrants during the restructuring period. A current draft of the Interim Restructuring Agreement as of the date of this filing is attached hereto as Exhibit 18 and incorporated herein by reference; (2) A Release Agreement by and among the Issuer, the Issuer's subsidiaries named therein, and the Transaction Noteholders with the exception of Kings Road Investments Ltd. ("Release"), in which (i) the Issuer - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 8 of 11 Pages - ---------------------------- ---------------------------- and the Issuer's subsidiaries agree to release and forever discharge the Transaction Noteholders who are parties to the Release from any and all claims and liabilities in any way connected with the Bankruptcy Case; and (ii) the Transaction Noteholders, with the exception of Kings Road Investments Ltd., agree to release and forever discharge the present and former employees, officers, directors, and attorneys of the Issuer and the Issuer's subsidiaries (but not the Issuer or the Issuer's subsidiaries themselves, and with respect to McLaughlin, not with respect to the McLaughlin Guaranty, as defined below) from any or all claims and liabilities in any way connected with the Transaction Documents or the Bankruptcy Case. A current draft of the Release as of the date of this filing is attached hereto as Exhibit 19 and incorporated herein by reference; (3) An Affidavit of Confession of Judgment to be executed by McLaughlin on behalf of the Issuer, which confesses judgment to Castlerigg Master Investments on the amount of outstanding debts owed to Castlerigg Master Investments by the Issuer. A current draft of the Affidavit of Confession of Judgment as of the date of this filing is attached hereto as Exhibit 20 and incorporated herein by reference; (4) A Guaranty given by the subsidiaries of the Issuer ("Subsidiary Guaranty") for the prompt payment of the total outstanding amount due and owing to the Transaction Noteholders, upon the occurrence of certain trigger events outlined in the Subsidiary Guaranty, for the pro-rata benefit of each of the Transaction Noteholders that is a party to the Subsidiary Guaranty. A current draft of the Subsidiary Guaranty as of the date of this filing is attached hereto as Exhibit 21 and incorporated herein by reference; and (5) An Escrow Agreement by and among Schulte Roth & Zabel LLP ("SRZ"), the Transaction Noteholders, the Issuer, McLaughlin, and the Issuer's subsidiaries listed therein ("Escrow Agreement"), appointing SRZ to serve under the terms of the Escrow Agreement as the escrow agent to hold and release the original versions of all executed documents related to the Restructuring Transaction, including the documents attached as Exhibits 18 - 22 hereto. A current draft of the Escrow Agreement as of the date of this filing is attached hereto as Exhibit 22 and incorporated herein by reference. Additionally, McLaughlin has agreed to a limited personal guaranty in favor of certain of the Transaction Noteholders for a portion of the total outstanding amount due to such Transaction Noteholders. Castlerigg will also engage in ongoing negotiations with certain of the Transaction Noteholders to coordinate their efforts to implement the Restructuring Transaction in order to maximize their recovery under the Transaction Documents. Contingent upon the dismissal of the Bankruptcy Case, Castlerigg has offered to acquire (i) the Notes and Warrants of Captial Ventures International, (ii) the Notes and Warrants of Evolution Master Fund Ltd. SPC, Segregated Portfolio M, (iii) the Notes and Warrants of Kings Road Investments Ltd., (iv) the Notes and Warrants of Cranshire Capital, L.P. and (v) one-half of the Notes and Warrants of Portside Growth and Opportunity Fund (collectively, the "Proposed Selling Noteholders ") at the price of $0.25 per each $1.00 of Notes for the Notes, Warrants and Initial Bridge Warrants, if any, held by each such Proposed Selling Noteholder. Castlerigg has distributed proposed forms of securities purchase agreements by and between Castlerigg and each of the Proposed Selling Noteholders, and a current draft of each Securities Purchase Agreement is attached hereto as Exhibit 23, 24, 25, 26 and 27, respectively, which are incorporated herein by reference. As of the date hereof, the drafts of the documents attached hereto as Exhibits 18 - 27 have not been executed or entered into by any of the parties thereto and the Reporting Persons cannot confirm if such documents will be entered into in the future. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 9 of 11 Pages - ---------------------------- ---------------------------- Castlerigg Master Investments delivered a letter to the Issuer on November 8, 2007 (the "Blocker Letter") that notified the Issuer of the Reporting Persons' election to decrease the maximum blocker percentage to 1.249% (the "Maximum Percentage") pursuant to the Notes and Warrants of Castlerigg Master Investments. The letter further stated that the Reporting Persons waived any right to increase the Maximum Percentage in the Notes and Warrants, and any other Notes or Warrants acquired by the Reporting Persons after the date of the letter, above 1.249% at any time. The changes specified in the Blocker Letter became effective immediately upon the Issuer's receipt of the Blocker Letter. A copy of the Blocker Letter is attached hereto as Exhibit 28 and is incorporated herein by reference. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER Paragraphs (a), (b) and (e) of Item 5 of the Schedule 13D are amended and restated as follows: (a) Each of the Reporting Persons may be deemed to beneficially own (i) the shares of Common Stock issuable to Castlerigg Master Investments upon exercise of the Warrants and (ii) the shares of Common Stock issuable to Castlerigg Master Investments upon conversion of the outstanding principal of the Note. As described in Item 4 above, upon the Issuer's receipt of the Blocker Letter, the aggregate number of shares issuable to Castlerigg Master Investments upon exercise of the Warrants and the conversion of the Notes will in no case exceed 1.249% of the shares of Common Stock outstanding, and the Reporting Persons beneficially own less than 1.249% of the common stock of the Issuer. The percentages reported herein are based on 246,017,970 shares of Common Stock outstanding as set forth in the Quarterly Report on Form 10-QSB for the period ended June 30, 2007, filed by the Issuer on August 20, 2007. (b) None of the Reporting Persons has sole power to vote or direct the vote or sole power to dispose or direct the disposition of shares of Common Stock. Each of Castlerigg Master Investments, SAMC, Castlerigg International, Castlerigg Holdings and Sandell has shared power to vote or direct the vote and shared power to dispose or direct the disposition of (i) the shares of Common Stock issuable to Castlerigg Master Investments upon exercise of the Warrants and (ii) the shares of Common Stock issuable to Castlerigg Master Investments upon conversion of the outstanding principal of the Note. (e) The Reporting Persons ceased to be the beneficial owners of more than 5% of the outstanding Common Stock upon the Issuer's receipt of the Blocker Letter as discussed in Item 4, above. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Item 6 of the Schedule 13D is hereby amended by the addition of the following: As described in Item 4 above, in connection with the possible restructuring and modification of the existing rights and obligations under the Transaction Documents with the Issuer and its subsidiaries, Castlerigg Master Investments may enter into one or more definitive documents to be negotiated during the course of the next six to twelve months. Furthermore, the Reporting Persons have agreed to reduce the Maximum Percentage under the Notes and Warrants from 4.99% to 1.249% effective upon the Issuer's receipt of the Blocker Letter described in Item 4 above. Except as otherwise set forth herein, the Reporting Persons do not have any contract, arrangement, understanding or relationship with any person with respect to securities of the Issuer. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 10 of 11 Pages - ---------------------------- ---------------------------- ITEM 7. MATERIAL TO BE FILED AS EXHIBITS Item 7 of the Schedule 13D is amended by the addition of the following at the end of the exhibits list therein: The following documents are filed as appendices and exhibits: EXHIBITS 18. Draft of Interim Restructuring Agreement, by and among Earth Biofuels, Inc., Dennis McLaughlin, Castlerigg Master Investments and certain other lenders that are signatories thereto, and the Earth Biofuels, Inc. subsidiaries named therein. 19. Draft of Release by and among Earth Biofuels, Inc., each of the Earth Biofuels, Inc. subsidiaries named therein, and the noteholders that are signatories thereto. 20. Draft of the Affidavit of Confession of Judgment by Dennis McLaughlin confessing judgment to Castlerigg Master Investments for the entire amount outstanding and due to Castlerigg Master Investments by Earth Biofuels, Inc. 21. Draft of Guaranty Agreement by each of the Earth Biofuels, Inc. subsidiaries named therein, as guarantors, to the benefit of Castlerigg Master Investments and certain other lenders that are signatories thereto. 22. Draft of Escrow Agreement by and among Schulte Roth & Zabel LLP, Castlerigg Master Investments and the other lenders that are signatories thereto, Earth Biofuels, Inc., Dennis McLaughlin, and the Earth Biofuels, Inc. subsidiaries named therein. 23. Draft of Securities Purchase Agreement between Capital Ventures International, as seller, and Castlerigg Master Investments, as buyer. 24. Draft Form of Securities Purchase Agreement between Evolution Master Fund Ltd. SPC, Segregated Portfolio M, as seller, and Castlerigg Master Investments, as buyer. 25. Draft Form of Securities Purchase Agreement between Kings Road Investments Ltd., as seller, and Castlerigg Master Investments, as buyer. 26. Draft Form of Securities Purchase Agreement between Cranshire Capital, L.P., as seller, and Castlerigg Master Investments, as buyer. 27. Draft Form of Securities Purchase Agreement between Portside Growth and Opportunity Fund, as seller, and Castlerigg Master Investments, as buyer. 28. Blocker Letter, dated November 8, 2007, from Castlerigg Master Investments to Earth Biofuels, Inc. - ---------------------------- ---------------------------- CUSIP No. 27031F102 SCHEDULE 13D Page 11 of 11 Pages - ---------------------------- ---------------------------- Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 13, 2007 CASTLERIGG MASTER INVESTMENTS LTD. By: Sandell Asset Management Corp., its Investment Manager By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell Chief Executive Officer SANDELL ASSET MANAGEMENT CORP. By: Sandell Asset Management Corp., its Investment Manager By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell Chief Executive Officer CASTLERIGG INTERNATIONAL LIMITED By: Sandell Asset Management Corp., its Investment Manager By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell Chief Executive Officer CASTLERIGG INTERNATIONAL HOLDINGS LIMITED By: Sandell Asset Management Corp., its Investment Manager By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell Chief Executive Officer THOMAS E. SANDELL By: /s/ Thomas E. Sandell --------------------- Thomas E. Sandell EX-99 2 exhibit_18.txt EXHIBIT 18 - DRAFT OF INTERIM RESTRUCTURING AGREEMENT DRAFT 11/09/2007 INTERIM RESTRUCTURING AGREEMENT THIS INTERIM RESTRUCTURING AGREEMENT, (the "AGREEMENT"), is dated of the [__] day of November, 2007 ("AGREEMENT DATE") by and among (i) the LENDERS that are signatories hereto (collectively, the "LENDERS"); (ii) EARTH BIOFUELS, INC., a Delaware Corporation, ("EBOF"); (iii) DENNIS MCLAUGHLIN, ("MCLAUGHLIN") an individual; and (iv) entities listed on the SCHEDULE OF EBOF SUBSIDIARIES attached hereto as Schedule A (individually, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES"). RECITALS WHEREAS, Radcliffe SPC, Ltd. for and on behalf of the Class A Convertible Crossover Segregated Portfolio ("RADCLIFFE"), Castlerigg Master Investments Ltd. ("CASTLERIGG"), and Capital Ventures International ("CVI"; collectively, the "INITIAL BRIDGE LENDERS") are parties to a Securities Purchase Agreement, dated as of June 7, 2006 (the "INITIAL BRIDGE SECURITIES PURCHASE AGREEMENT") with Earth Biofuels, Inc. ("EBOF"), pursuant to which EBOF issued, among other things, warrants to purchase 1,500,000 shares of common stock, $0.001 par value (the "COMMON STOCK"), of EBOF at the exercise price of $2.93 (the "INITIAL BRIDGE WARRANTS") and in connection with the Initial Bridge Securities Purchase Agreement, EBOF executed a Registration Rights Agreement (the "INITIAL BRIDGE REGISTRATION RIGHTS AGREEMENT," collectively with the Initial Bridge Securities Purchase Agreement and the Initial Bridge Warrants, the "INITIAL BRIDGE TRANSACTION DOCUMENTS") under which it agreed to cooperate in the registration of the securities under the Initial Bridge Securities Purchase Agreement; WHEREAS, Castlerigg (the "SECOND BRIDGE LENDER") is a party to a Securities Purchase Agreement, dated as of July 10, 2006 (the "SECOND BRIDGE SECURITIES PURCHASE AGREEMENT") with EBOF, pursuant to which EBOF issued, among other things, warrants to purchase 1,500,000 shares of Common Stock at the exercise price of $2.50 (the "SECOND BRIDGE WARRANTS") and in connection with the Second Bridge Securities Purchase Agreement, EBOF executed a Registration Rights Agreement (the "SECOND BRIDGE REGISTRATION RIGHTS AGREEMENT," collectively with the Second Bridge Securities Purchase Agreement, Second Bridge Warrants, the "SECOND BRIDGE TRANSACTION Documents") under which it agreed to cooperate in the registration of the securities under the Second Bridge Securities Purchase Agreement; WHEREAS, Radcliffe, Castlerigg, CVI, YA Global Investments, L.P. (formerly known as Cornell Capital, L.P. ("YORKVILLE")), Cranshire Capital L.P. ("CRANSHIRE"), Portside Growth and Opportunity Fund ("PORTSIDE"), Evolution Master Fund Ltd. SPC, Segregated Portfolio M ("EVOLUTION"), and Kings Road Investments Ltd. ("KINGS Road"; collectively, the "NOTEHOLDERS") are parties to a Securities Purchase Agreement, dated as of July 24, 2006 (the "SECURITIES PURCHASE AGREEMENT") with EBOF, pursuant to which EBOF issued (i) 8% Senior Convertible Notes (collectively, the "NOTES") in the aggregate principal amount of $52.5 million, which were unsecured and convertible into shares of Common Stock at $2.90 per share, and (ii) warrants to purchase in excess of 9,000,000 shares of common stock of EBOF at the exercise price of $2.90 (the "WARRANTS") and in connection with the Securities Purchase Agreement, EBOF executed a Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT," collectively with the Initial Bridge Transaction Documents, the Second Bridge Transaction Documents, the Securities DRAFT 11/09/2007 Purchase Agreement, Notes, and Warrants, the "TRANSACTION DOCUMENTS") under which it agreed to cooperate in the registration of the securities under the Securities Purchase Agreement; WHEREAS, each Noteholder delivered an Event of Default Redemption Notice to EBOF identifying various events of default under its Note and demanding that EBOF redeem the Noteholder's interest in the Note at the Event of Default Redemption Price and EBOF failed to remit the Event of Default Redemption Price; WHEREAS, numerous Events of Default as defined in the Transaction Documents have occurred and are continuing; WHEREAS, on July 11, 2007, Radcliffe, Yorkville, Portside, Castlerigg and Evolution (the "PETITIONING CREDITORS") commenced an involuntary bankruptcy proceeding against EBOF pursuant to Title 11 of the United States Code (the "BANKRUPTCY CODE") in the United States Bankruptcy Court for the District of Delaware, Case No. 07-10928 (CSS) (the "BANKRUPTCY CASE"); WHEREAS, for the past several months, EBOF has engaged in discussions with Castlerigg and certain of the other Noteholders regarding the terms of an out-of-court restructuring; WHEREAS, EBOF wishes to further explore the possibility of restructuring and modifying the existing rights and obligations under the Transaction Documents with the Noteholders, through one or more definitive documents to be negotiated during the course of the next 6 to 12 months (the "RESTRUCTURING TRANSACTION"); WHEREAS, at EBOF's request, the Lenders are willing, subject to and on the terms and conditions hereof and of the documents to be executed in connection herewith, to forbear from exercising rights and remedies under the Transaction Documents and, as applicable, to consent to dismissal of the Bankruptcy Case in exchange for the terms hereof and of the documents to be executed in connection herewith. NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration recited in this Agreement, the receipt and sufficiency of which are herein acknowledged, the Lenders, EBOF, McLaughlin and the Subsidiaries (each, a "PARTY"; collectively, the "PARTIES") agree to the following: 1. DISMISSAL OF BANKRUPTCY CASE (a) EBOF and each Lender that is a Petitioning Creditor shall consent, subject to section 2(b) below, to the dismissal of the Bankruptcy Case pursuant to Section 303(j) of the Bankruptcy Code, with each Party to bear its own costs. (b) Concurrently with the filing of the joint motion to dismiss (the "DISMISSAL MOTION"), which shall be in form and substance acceptable to the Lenders that are Petitioning Creditors, EBOF shall also file with the Bankruptcy Court a verified list of creditors who shall receive notice of the motion to dismiss the Bankruptcy Case. DRAFT 11/09/2007 (c) EBOF and the Lenders that are Petitioning Creditors shall file the Dismissal Motion to dismiss the Bankruptcy Case with the Bankruptcy Court by no later November [__], 2007.(1) 2. NEW COLLATERAL DOCUMENTS (a) Concurrently with the execution of this Agreement, the Parties (as applicable) shall execute the following documents, forms of which are attached hereto as Exhibits A - D) (collectively, the "COLLATERAL DOCUMENTS") all which shall be effective as of the Dismissal Date (as defined in section 8 below): (i) release agreement; (ii) guaranty from McLaughlin ("MCLAUGHLIN GUARANTY") in favor of the Lenders; (iii) confessions of judgment by EBOF in favor of each of the Lenders (individually and collectively, the "CONFESSIONS OF JUDGMENT"); and (iv) guaranty from the Subsidiaries ("SUBSIDIARY GUARANTY") in favor of the Lenders. 3. FORBEARANCE (a) Each Lender hereby agrees to forebear from exercising or enforcing any contractual, legal or equitable rights or remedies (including, but not limited to, exercising any creditor remedies) arising under or related to the Transaction Documents or Collateral Documents from the Dismissal Date (defined in section 8 below) until the earliest of the following to occur (each a "STANDSTILL EXPIRATION EVENT"): (i) June [__], 2008, which may be extended with the prior written consent of all Lenders in their sole discretion;(2) (ii) 180 days from the Dismissal Date, which may be extended with the prior written consent of all Lenders in their sole discretion; (iii) final consummation of all aspects of the restructuring (as determined by the Lenders holding 66 ?% of the aggregate principal amount of the Notes (the "REQUIRED LENDERS") in their sole discretion); (iv) any of the following events occur: (1) INSERT DATE THAT IS 5 CALENDAR DAYS AFTER EXECUTION OF THIS AGREEMENT. (2) INSERT DATE THAT 225 DAYS FROM THE EXECUTION OF THIS AGREEMENT. DRAFT 11/09/2007 (1) prior to the Restructuring Consummation Deadline (as defined in section 3(a)(iv)(5) below), either (x) an order for relief is entered in a case under the Bankruptcy Code with respect to EBOF or any Subsidiary, or (y) an involuntary bankruptcy petition is filed against either EBOF or any Subsidiary and such petition is not dismissed on or before sixty (60) days after the date such petition is filed; (2) failure of EBOF to execute security documents (in form and substance acceptable to the Required Lenders as determined by the Required Lenders in their sole discretion) sufficient to provide the Lenders with liens, subject only to any valid then-existing liens, on all of EBOF's assets to secure EBOF's obligations under the Confessions of Judgment and the Transaction Documents on or before ten (10) days after the Dismissal Date; (3) failure of all Subsidiaries to execute security documents (in form and substance acceptable to the Required Lenders as determined by the Required Lenders in their sole discretion) in favor of the Lenders subject only to any valid then-existing liens, securing their respective obligations under the Subsidiary Guaranty on or before ten (10) days after the Dismissal Date; (4) failure of EBOF and Subsidiaries to execute a term sheet with the material terms of a restructuring (in form and substance acceptable to the Required Lenders in their sole discretion) (the "RESTRUCTURING TERM SHEET") on or before thirty (30) days after the Dismissal Date; (5) failure of EBOF and Subsidiaries to consummate the transactions contemplated in the Restructuring Term Sheet fully (as determined by the Required Lenders in their reasonable discretion) ("RESTRUCTURING CONSUMMATION DEADLINE") on or before one hundred and twenty (120) days after the Dismissal Date; (6) any action is commenced to void, avoid, invalidate, subordinate, recharacterize, reduce or recover (in whole or in part) any or all of the Collateral Documents, any claim of any of the Lenders under any of the Notes or any of the other Transaction Documents, any lien granted to secure any such claim or any obligation under any of the Collateral Documents or any of the Transaction Documents (including, without limitation, the actions described in sections 5(b) and (c) below), or any payment made in respect of such claim or obligation; and (7) EBOF or any Subsidiary grants or permits to exist any lien not in existence as of the date of this Agreement on any of its assets. DRAFT 11/09/2007 (b) The Required Lenders can waive a Standstill Expiration Event under section 3(a)(iv) (1)-(7) only by a writing signed by the Required Lenders delivered to EBOF with written notice to all other Lenders. (c) Any proceeds recovered by any Lender under any of the Collateral Documents shall be held by such other Lender in trust for the Pro Rata benefit of the other Lenders and distributed accordingly. The term "PRO RATA" shall mean, as to any Lender, the ratio determined by dividing (x) the face amount of Notes then held by such Lender by (y) the face amount of Notes then held by all Lenders. This provision shall survive termination of this Agreement. (d) Nothing herein shall be deemed to prohibit any Lender from (i) acquiring, holding, voting or disposing of any securities issued upon the exercise of the Warrants or upon the conversion of the Notes, (ii) exercising or refraining from exercising, the Warrants, (iii) converting, or refraining from converting, the Notes, or (iv) taking any action to compel EBOF to comply with any such exercise or conversion. (e) Notwithstanding anything contained in this Agreement to the contrary, EBOF and Cranshire agree that (i) the Restrained Funds (as defined in the Stipulation Directing Earth Biofuels, Inc. to Segregate and Maintain Certain Funds as Adequate Protection for Cranshire Capital, L.P. Until Further Notice of the Court that was previously filed with the Bankruptcy Court) in the Segregated Account (as defined in the Stipulation Directing Earth Biofuels, Inc. to Segregate and Maintain Certain Funds as Adequate Protection for Cranshire Capital, L.P. Until Further Notice of the Court that was previously filed with the Bankruptcy Court) shall be released to Cranshire within 2 business days after the Dismissal Date, (ii) to the extent necessary or required, Cranshire shall be entitled to obtain from the Bankruptcy Court such orders so releasing such funds to Cranshire and (iii) EBOF shall not object to such release of the Restrained Funds. 4. RESTRUCTURING TRANSACTION. Until the occurrence of a Standstill Expiration Event, each Lender expressly agrees that it shall be bound to accept any Restructuring Transaction proposed by EBOF and accepted in writing by the Required Lenders with written notice to all Lenders; PROVIDED, HOWEVER, that no proposed Restructuring Transaction or any other transaction or agreement with EBOF, its Subsidiaries or any of their affiliates or with McLaughlin relating to the Transaction Documents shall be approved or accepted by any Lender unless the transaction or agreement offers the same consideration and the same terms and conditions to all Lenders, with each such Lender's share of such consideration to be determined on a Pro Rata basis, and no consideration is offered or given to any person or entity in connection therewith other than the Lenders. The Parties acknowledge that the Restructuring Transaction may be implemented in stages. Nothing contained in this section, elsewhere in this Agreement or in any Collateral Document shall, or shall be used to, impose on any Lender any monetary obligation (including, without limitation, making any loan, investing any capital, or making any other financial accommodation) as a result of, or relating to, or arising out of the Bankruptcy Case or the Restructuring Transaction without the prior written consent of such Lender, which may DRAFT 11/09/2007 be granted or withheld in such Lender's sole discretion. No Lender shall be bound by any such obligation absent such prior written consent by it. 5. ACKNOWLEDGEMENT OF TOTAL DEBT. (a) Subject only to section 6 below, EBOF, McLaughlin and the Subsidiaries acknowledge that the aggregate amount due and owing from EBOF to the Noteholders pursuant to the Transaction Documents is $100,651,173 (as of September 28, 2007) (as set forth on Schedule B) plus fees, costs, and expenses, and that such amount is immediately due and payable to the Noteholders without set-off, counterclaim, deduction, offset or defense (the "TOTAL DEBT"). (b) Subject only to section 6 below, EBOF, McLaughlin, and the Subsidiaries shall not directly or indirectly object to, challenge, contest or otherwise seek to invalidate or reduce (or support directly or indirectly any other person or entity in any such objection, challenge or contest) the existence, validity or amount of the Total Debt, the obligations under the Transactions Documents or the Collateral Documents or any lien granted to secure such obligations to the extent such claims are held by or obligations are owed to the Lenders. (c) EBOF, McLaughlin and the Subsidiaries shall not directly or indirectly seek to subordinate or recharacterize any claim of any Lender. 6. RESERVATION OF RIGHTS. The acknowledgement and covenants in section 5 above shall only apply with respect to the claims and liens that are held by the Lenders. EBOF reserves all rights to challenge any claim held by any Noteholder that is not a signatory to this Agreement. 7. AFTER ACQUIRED CLAIMS. In the event that a Lender acquires and continues to hold the Notes and Warrants (the "EXCLUDED SECURITIES") under the Transaction Document of a Noteholder that is not a signatory hereto (an "EXCLUDED NOTEHOLDER"), such Excluded Securities acquired (and held) by such Lender shall be deemed to be Notes and Warrants of such Lender governed by the terms and conditions of this Agreement and the Collateral Documents (and the benefits thereunder) as if such Excluded Securities were held by such Lender as of the date of this Agreement (but only for so long as such Excluded Securities are held by such Lender). The Pro Rata share of any Lender that acquires Notes from an Excluded Noteholder (or that transfers any portion of its Notes) shall be adjusted accordingly. 8. EFFECTIVE DATE. This Agreement and the Collateral Documents shall be placed into escrow pursuant to an escrow agreement (the form of which is attached hereto as Exhibit E) and shall be released from escrow and shall become effective on the date that an order dismissing the Bankruptcy Case (a "DISMISSAL ORDER") is entered on the docket provided that such order is not stayed (the "DISMISSAL DATE"); PROVIDED, HOWEVER, that if the Dismissal Date fails to occur on or before December 21, 2007 (or such later date as may be agreed in writing by all Lenders prior to the expiration of such date or dates) (a "FAILURE EVENT"), then, (a) EBOF shall immediately file a notice to withdraw the DRAFT 11/09/2007 Dismissal Motion (the "WITHDRAWAL NOTICE"), which the Lenders that are Petitioning Creditors hereby authorize upon the occurrence of a Failure Event (or if EBOF fails to do so, EBOF hereby authorizes the Lenders that are Petitioning Creditors to do so on EBOF's behalf), and (b) this Agreement and the Collateral Documents shall be null and void upon entry of the Withdrawal Notice on the docket of the Bankruptcy Court, provided that a Dismissal Order has not been previously docketed. If (i) the Dismissal Motion is denied, then this Agreement and the Collateral Documents shall be null and void or (ii) a Withdrawal Notice is filed before a Dismissal Order (if any) is entered, then this Agreement and the Collateral Documents shall be null and void as contemplated in clause (b) above, and, in each case, to the fullest extent possible, each of the Parties shall be restored to the position it held immediately before the Agreement Date. The Parties shall cooperate to seek dismissal of the Bankruptcy Case as expeditiously as possible and such cooperation agreement shall be effective upon execution of this Agreement. Notwithstanding the foregoing, sections 1, 2, 7, 8-15, and 17-20 shall be effective immediately upon execution of this Agreement and such sections shall terminate and be of no further force or effect if this Agreement and the Collateral Documents become null and void as described above. 9. INTERIM PROTECTIONS. Between the date of execution of this Agreement and the Dismissal Date, neither EBOF nor any of its Subsidiaries shall (a) incur any debt or transfer any asset outside the ordinary course of business, (b) grant any lien or permit any lien to arise on any of its assets, or (c) otherwise take any action that would be inconsistent with, or adverse in any way to, any of the terms of this Agreement or of any of the Collateral Documents, as if such agreements were in full force and effect, without the prior written consent of the Required Lenders. 10. GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning the construction, validity, enforcement and interpretation of this Agreement 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. Each Party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each Party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such Party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE DRAFT 11/09/2007 HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 11. COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. 12. HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. 13. RECITALS. Each of the Recitals is incorporated herein by this reference and shall become part of the Agreement. 14. NO CONFLICT INTENDED. Any inconsistency between this Agreement and the Exhibits attached hereto shall be resolved in favor of this Agreement. 15. INTEGRATION; EFFECT. This Agreement constitutes the entire agreement of the Parties pertaining to the subject matter hereof and all prior negotiations and representations relating thereto are merged herein. The terms and conditions set forth in this Agreement are the product of joint draftsmanship by all Parties, each being represented or having the opportunity to be represented by counsel, and any ambiguities in this Agreement or any documentation prepared pursuant to or in connection with this Agreement shall not be construed against any of the parties because of draftsmanship. This Agreement, is not intended to modify and does not modify the rights, remedies and obligations of the signatories under the Transaction Documents, except to the extent expressly set forth herein and then only with respect to the Parties hereto. 16. PENDING LITIGATION. To the extent that any Lender and EBOF are currently parties to an action on the Notes or other Transaction Documents, at the request of such Lender, EBOF shall consent to the dismissal of such action without prejudice and with each side to bear its own costs. 17. WAIVER OF ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK. EBOF and the Lenders (as applicable) agree to waive the application of section 7(a) of the Notes, section 6(e) of the Initial Bridge Warrants, section 6(e) of the Second Bridge Warrants, and section 2(a) of the Warrants (collectively, the "ANTI-DILUTION PROVISIONS") beginning on the date hereof and continuing until the earlier of (i) the date that this Agreement and the Collateral Documents becomes null and void pursuant to section 8 of this Agreement; or (ii) the occurrence of a Standstill Expiration Event (each, a "TERMINATION EVENT"). If a Termination Event occurs, and upon such Termination Event occurring, the Anti-Dilution Provisions shall apply retroactively to any dilutive issuances that occur between the date hereof and the occurrence of such Termination Event. DRAFT 11/09/2007 18. THIRD PARTY BENEFICIARIES. Unless expressly stated herein, this Agreement shall be solely for the benefit of the Parties hereto and no other person or entity shall be a third-party beneficiary hereof. 19. Successors and Assigns. This Agreement shall be binding upon, and shall inure to the benefit of, each Party and its respective successors and assigns ("ASSIGNS"). In the case of an assignment or transfer of a Note, the assignee or transferee acquiring any interest in the Note shall execute and deliver to each Lender and EBOF (other than the respective assignor or transferor) a written acknowledgment of receipt of a copy of this Agreement and the written agreement by such person to be bound by the terms of this Agreement. 20. NOTICES. Any written notice required to be given under this Agreement shall be sent to the following by mail, electronic mail or facsimile, and shall be deemed given upon such mailing and sending by facsimile: If to Earth Biofuels, Dennis McLaughlin, or the Subsidiaries: 3001 Knox Street, Suite 403 Dallas, Texas 75205 Telephone: (214) 389-9800 Facsimile: (214) 389-9805 Attention: Dennis McLaughlin with a copy to: Akin Gump Strauss Hauer & Feld LLP 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Telephone: (214) 969-4710 Facsimile: (214) 969-4343 Attention: Charles R. Gibbs, Esq. If to Castlerigg (to the extent it executes this Agreement): 40 West 57th Street 26th Floor New York, New York 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu (chacioglu@sandellmgmt.com) Matthew Pliskin (mpliskin@sandellmgmt.com) with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 DRAFT 11/09/2007 Facsimile: (212) 593-5955 Attention: David M. Hillman, Esq. (david.hillman@srz.com) Jeffrey S. Sabin, Esq. (jeffrey.sabin@srz.com) If to Radcliffe (to the extent it executes this Agreement): c/o RG Capital Management, L.P. 3 Bala Plaza - East, Suite 501 Bala Cynwyd, PA 19004 Telephone: (610) 617-5911 Facsimile: (610) 617-0570 Attention: Gerald F. Stahlecker (gstahlecker@radcliffefunds.com) with a copy to: Wilmer Cutler Pickering Hale and Dorr LLP 399 Park Avenue New York, New York 10022 Telephone: (212) 230-8800 Facsimile: (212) 230-8888 Attention: Philip D. Anker, Esq. (Philip.Anker@wilmerhale.com) If to Yorkville (the extent it executes this Agreement): 101 Hudson Street, Suite 3700 Jersey City, New Jersey 07303 Attention: Eric Hansen, Esq. (ehansen@yorkvilleadvisors.com) with a copy to: Baker Botts L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Telephone: (214) 953-6571 Facsimile: (214) 953-6503 Attention: C. Luckey McDowell, Esq. (luckey.mcdowell@bakerbotts.com) If to Cranshire (to the extent it executes this Agreement): Greenberg Traurig LLP 77 W. Wacker Dr., Suite 2500 Chicago, Illinois 60601 Telephone: (312) 456-8448 Facsimile: (312) 456-8435 DRAFT 11/09/2007 Attention: Todd Mazur, Esq. (mazurt@gtlaw.com) Peter Lieberman (liebermanp@gtlaw.com) If to Evolution (the extent it executes this Agreement): c/o Evolution Capital Management LLC 2425 Olympic Boulevard, Suite 120E Santa Monica, California 90404 Telephone: (310) 315-8866 Attention: Brian S. Yeh (brian.yeh@evofund.com) with a copy to: Cadwalader, Wickersham & Taft LLP One World Financial Center New York, New York 10281 Telephone: (212) 504-6373 Facsimile: (212) 504-6666 Attention: Gregory M. Petrick, Esq. (gregory.petrick@cwt.com) If to Kings Road (the extent it executes this Agreement): c/o Polygon Investment Partners LP 598 Madison Avenue, 14th Floor New York, New York 10022 Telephone: (212) 359-7300 Facsimile: (212) 359-7303 Attention: Erik M.W. Casperson (ecaspersen@polygoninv.com) Brandon L. Jones (bjones@polygoninv.com) with a copy to: Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Telephone: (213) 485-1234 Facsimile: (213) 891-8763 Attention: Russell Sauer, Esq. (russ.sauer@lw.com) If to CVI (the extent it executes this Agreement): c/o Heights Capital Management 101 California Street, Suite 3250 San Francisco, California 94111 Telephone: (415) 403-6510 DRAFT 11/09/2007 Facsimile: (610) 617-3896 Attention: Michael Spolan (Michael.Spolan@sig.com) with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers, LLP 919 Market Street, Suite 1000 Wilmington, Delaware 19801 Telephone: (302) 426-1189 Facsimile: (302) 426-9193 Attention: Richard M. Beck, Esq. (rbeck@klehr.com) If to Portside (the extent it executes this Agreement): c/o Ramius Capital Group, L.L.C. 666 Third Avenue, 26th Floor New York, New York 10017 Telephone: (212) 845-7955 Facsimile: (212) 201-4802 Attention: Jeffrey Smith (jsmith@ramius.com) Peter Feld (pfeld@ramius.com) Owen Littman (olittman@ramius.com) with a copy to: Hennigan, Bennett & Dorman 601 South Figueroa Street, Suite 3300 Los Angeles, California 90017 Telephone: (213) 694-1012 Facsimile: (213) 694-1234 Attention: Bruce Bennett, Esq. (bennettb@hbdlawyers.com) DRAFT 11/09/2007 IN WITNESS WHEREOF, the parties to this Agreement have caused their respective signature page to this Interim Restructuring Agreement to be duly executed as of the date first written above. Earth Biofuels, Inc. Castlerigg Master Investments Ltd. By: Sandell Asset Management Corp. By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: Evolution Master Fund Ltd. SPC, Capital Ventures International Segregated Portfolio M By: Heights Capital Management, Inc. its authorized agent By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: Radcliffe SPC, Ltd. for and on behalf of YA Global Investments, L.P. the Class A Convertible Crossover (formerly, Cornell Capital Segregated Portfolio Partners, LP By: RG Capital Management Company, By: Yorkville Advisors, LLC LLC Its: General Partner By: RGC Management Company, LLC By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: Cranshire Capital, LP Portside Growth and Opportunity Fund By: By: --------------------------------- --------------------------------- Name: Name: Title: Title: Kings Road Investments Ltd. By: --------------------------------- Name: Title: DRAFT 11/09/2007 IN WITNESS WHEREOF, the parties to this Agreement have caused their respective signature page to this Interim Restructuring Agreement to be duly executed as of the date first written above. ------------------------------------- Name ------------------------------------- Signature ------------------------------------- Address STATE OF TEXAS ) ) ss. COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, on this day personally appeared DENNIS MCLAUGHLIN, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated. Given under my hand and seal of office, this ____ day of __________, 2007. (Seal) Notary Public, State of Texas (Notary's Name Typed or Printed) My Commission Expires: DRAFT 11/09/2007 IN WITNESS WHEREOF, the parties to this Agreement have caused their respective signature page to this Interim Restructuring Agreement to be duly executed as of the date first written above. Earth LNG, Inc. Earth Biofuels, Technology Co, LLC d/b/a Advanced Biofuels Technology, LLC By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: Applied LNG Technologies, USA, LLC Earth Biofuels Distribution Co. By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: Alternative Dual Fuels, Inc. Earth Biofuels of Cordele, LLC d/b/a Apollo Leasing, Inc. By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: Arizona LNG, LLC B20 Customs LLC By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: Fleet Star, Inc. Earth Biofuels Operating, Inc. By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: Durant Biofuels, LLC Earth Biofuels Retail Fuels, Co. By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: DRAFT 11/09/2007 Earth Ethanol of Washington LLC Earth Ethanol, Inc. By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: DRAFT 11/09/2007 SCHEDULE A SCHEDULE OF EBOF SUBSIDIARIES SUBSIDIARY ----------------------------- Earth LNG, Inc. Applied LNG Technologies, USA, LLC Alternative Dual Fuels, Inc. d/b/a Apollo Leasing, Inc. Arizona LNG, LLC Fleet Star, Inc. Durant Biofuels, LLC Earth Biofuels, Technology Co, LLC d/b/a Advanced Biofuels Technology, LLC Earth Biofuels Distribution Co Earth Biofuels of Cordele, LLC B20 Customs LLC Earth Biofuels Operating, Inc. Earth Biofuels Retail Fuels, Co. Earth Ethanol, Inc. Earth Ethanol of Washington LLC DRAFT 11/09/2007 SCHEDULE B SCHEDULE OF AMOUNTS DUE AND OWING --------------------------------- AMOUNT DUE AS OF LENDER SEPTEMBER 28, 2007 CASTLERIGG MASTER INVESTMENTS LTD. $21,760,827 EVOLUTION MASTER FUND LTD. SPC, SEGREGATED $22,036,827 PORTFOLlO M KINGS ROAD INVESTMENTS LTD. $19,162,458 CAPITAL VENTURES INTERNATIONAL $15,526,233 RADCLIFFE SPC, LTD. FOR AND ON BEHALF OF THE CLASS A $9,581,229 CONVERTIBLE CROSSOVER SEGREGATED PORTFOLIO YA GLOBAL INVESTMENTS, L.P. (FORMERLY, CORNELL CAPITAL $5,876,738 PARTNERS, L.P.) PORTSIDE GROWTH & OPPORTUNITY FUND $3,832,492 CRANSHIRE CAPITAL LP $2,874,369 TOTAL $100,651,173 DRAFT 11/09/2007 EXHIBIT A RELEASE DRAFT 11/09/2007 EXHIBIT B MCLAUGHLIN GUARANTY DRAFT 11/09/2007 EXHIBIT C CONFESSIONS OF JUDGMENT DRAFT 11/09/2007 EXHIBIT D SUBSIDIARY GUARANTY DRAFT 11/09/2007 EXHIBIT E ESCROW AGREEMENT EX-99 3 exhibit_19.txt EXHIBIT 19 - DRAFT OF RELEASE DRAFT 11/9/2007 RELEASE EARTH BIOFUELS, INC. ("EBOF") and each entity listed on the SCHEDULE OF EBOF SUBSIDIARIES attached hereto as Exhibit A (individually, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES") on behalf of themselves their present and former employees, officers, directors, members, attorneys, subsidiaries, affiliates, divisions, assignors, predecessors, successors and assigns, in their capacities as such (collectively, the "EBOF RELEASORS"), hereby release and forever discharge each entity listed on the SCHEDULE OF EBOF NOTEHOLDERS attached hereto as Exhibit B that are signatories hereto (individually, a "NOTEHOLDER", and collectively, the "NOTEHOLDERS") and their present and former employees, officers, directors, members, attorneys, parents, subsidiaries, affiliates, divisions, assignors, investment managers, control persons, partners, shareholders, predecessors, successors and assigns, in their capacities as such (collectively the "RELEASED PARTIES"), of and from any and all claims, liabilities, demands, rights, obligations, damages, expenses, attorneys' fees and causes of action whatsoever from the beginning of the world to the date of this Release, whether individual, class or derivative in nature, whether at law or in equity, whether based on federal, state or foreign law, foreseen or unforeseen, matured or unmatured, known or unknown, accrued or not accrued, which Releasors have, had, or can, shall or may hereafter have against the Released Parties that arise out of, relate to, or are in any way connected with (i) the Securities Purchase Agreement, dated as of June 7, 2006 between EBOF and certain Noteholders (the "INITIAL BRIDGE SECURITIES PURCHASE AGREEMENT"); (ii) the warrants to purchase 1,500,000 shares of common stock, $0.001 par value (the "COMMON STOCK"), of EBOF at the exercise price of $2.93 issued by EBOF to certain Noteholders pursuant to the Initial Bridge Securities Purchase Agreement (the "INITIAL BRIDGE WARRANTS"); (iii) the Registration Rights Agreement issued in connection with the Initial Bridge Securities Purchase Agreement (the "INITIAL BRIDGE REGISTRATION RIGHTS AGREEMENT", collectively with the Initial Bridge Securities Purchase Agreement and the Initial Bridge Warrants, the "INITIAL BRIDGE TRANSACTION DOCUMENTS"); (iv) the Securities Purchase Agreement, dated as of July 10, 2006 between EBOF and certain Noteholders (the "SECOND BRIDGE SECURITIES PURCHASE Agreement"); (v) the warrants to purchase 1,500,000 shares of Common Stock at the exercise price of $2.50 issued by EBOF to certain Noteholders pursuant to the Second Bridge Securities Purchase Agreement (the "SECOND BRIDGE WARRANTS"); (vi) the Registration Rights Agreement issued in connection with the Second Bridge Securities Purchase Agreement (the "SECOND BRIDGE REGISTRATION RIGHTS Agreement", collectively with the Second Bridge Securities Purchase Agreement, Second Bridge Warrants, the "SECOND BRIDGE TRANSACTION DOCUMENTS"); (vii) the Securities Purchase Agreement, dated as of July 24, 2006 between EBOF and the Noteholders (the "SECURITIES PURCHASE AGREEMENT"); (viii) the 8% Senior Convertible Notes (collectively, the "NOTES") in the aggregate principal amount of $52.5 million issued by EBOF to the Noteholders pursuant to the Securities Purchase Agreement; (ix) the warrants to purchase in excess of 9,000,000 shares of common stock of EBOF at the exercise price of $2.90 (the "WARRANTS") issued by EBOF to the Noteholders in connection with the Securities Purchase Agreement; (x) the Registration Rights Agreement ") issued in connection with the Securities Purchase Agreement; (the "REGISTRATION RIGHTS AGREEMENT" collectively with the Initial Bridge Transaction Documents, the Second Bridge Transaction Documents, the Securities Purchase Agreement, Notes, and Warrants, the "TRANSACTION DOCUMENTS") or (xi) the involuntary bankruptcy proceeding commenced against DRAFT 11/9/2007 EBOF by certain Noteholders on July 11, 2007 pursuant to Title 11 of the United States Code (the "BANKRUPTCY CODE") in the United States Bankruptcy Court for the District of Delaware (the "BANKRUPTCY COURT"), Case No. 07-10928 (CSS) (the "BANKRUPTCY CASE") including but not limited to, all claims that could have been asserted under Section 303(i) of the Bankruptcy Code and any counterclaims or cross-claims related thereto. The Noteholders on behalf of themselves their present and former employees, officers, directors, members, attorneys, subsidiaries, affiliates, divisions, assignors, predecessors, successors and assigns, investment managers, control persons, partners, shareholders, in their capacities as such (collectively, the "NOTEHOLDER RELEASORS"), hereby release and forever discharge the present and former employees, officers, directors, and attorneys of EBOF and the Subsidiaries (but not EBOF or such Subsidiaries themselves), in their capacities as such (collectively, the "EBOF RELEASED PARTIES"), of and from any and all claims, liabilities, demands, rights, obligations, damages, expenses, attorneys' fees and causes of action whatsoever from the beginning of the world to the date of this Release, whether individual, class or derivative in nature, whether at law or in equity, whether based on federal, state or foreign law right of action, foreseen or unforeseen, matured or unmatured, known or unknown, accrued or not accrued, which Noteholder Releasors have, had, or can, shall or may hereafter have against the EBOF Released Parties that arise out of, relate to, or are in any way connected with (i) the Transaction Documents, or (ii) the Bankruptcy Case. For the avoidance of doubt, the EBOF Released Parties shall not include EBOF or any of its Subsidiaries. This Release shall be placed into escrow pursuant to an escrow agreement (the "Escrow Agreement," the form of which is attached hereto as Exhibit C) and shall be released therefrom and become effective in accordance with its terms upon on the date that the order by the Bankruptcy Court dismissing the Bankruptcy Case is entered on the docket and such order is not subject to a stay (the "Dismissal Date") provided that such Dismissal Date occurs on or before December 21, 2007 (unless extended in writing by all Noteholders). If any Purchase and Sale Agreement (as defined in the Escrow Agreement) terminates prior to the Dismissal Date in accordance with section 2(c) thereof, this Escrow Agreement shall be null, void and of no further force and effect as between the EVOF Releasors and the seller under such terminated Purchase and Sale Agreement. The EBOF Releasors and Noteholder Releasors hereby acknowledge that they may hereafter discover facts in addition to or different from those which they now know or believe to be true with respect to the subject matter of this Release but that it is their intention to, and they do hereby fully, finally and forever settle and release any and all claims, liabilities, demands, and causes of action, known or unknown, suspected and unsuspected, of every kind and nature whatsoever, which now exist, may hereafter exist, or may heretofore have existed with respect to the subject matter of this Release. In furtherance of such intention, they acknowledge that this Release shall be and remain in effect as a full and complete release, notwithstanding the subsequent discovery or existence of any such additional or different facts. Nothing in this release shall release EBOF or its Subsidiaries with respect to any obligation to the Noteholders including, but not limited to, obligations arising out of any of the Transaction Documents, the Interim Restructuring Agreement, dated November [__], 2007 (the "INTERIM RESTRUCTURING AGREEMENT"), or any of the documents contemplated in the Interim Restructuring Agreement. Nothing in this release shall release Dennis McLaughlin from any obligation to the Noteholders arising out of the Interim Restructuring Agreement or any of the documents contemplated in the Interim Restructuring Agreement, including, without limitation, the Guaranty by Dennis McLaughlin, dated November [__], 2007. 2 DRAFT 11/9/2007 In any litigation arising from or related to an alleged breach of this Release, this Release may be pleaded as a defense, counterclaim or cross claim, and shall be admissible into evidence without any foundation testimony whatsoever. The EBOF Releasors expressly covenant and agree that this Release shall be binding in all respects upon their respective successors, assigns and transferees, and shall inure to the benefit of successors and assigns of the Released Parties. This Release shall be governed by New York law without giving effect to any conflict of law provisions and shall not be altered, amended or modified in any respect, except by a writing duly signed by the party against whom the alteration, amendment or modification is to be charged. [SIGNATURE PAGE FOLLOWS] 3 DRAFT 11/9/2007 IN WITNESS WHEREOF, the undersigned has duly executed this Release. EARTH BIOFUELS, INC. ON BEHALF OF ITSELF AND THE SUBSIDIARIES By: ---------------------------------------- Name: Title: Date: DRAFT 11/9/2007 IN WITNESS WHEREOF, the undersigned has duly executed this Release. CASTLERIGG MASTER INVESTMENTS EVOLUTION MASTER FUND LTD. SPC, LTD SEGREGATED PORTFOLIO M BY: SANDELL ASSET MANAGEMENT CORP. By: __________________________________ By: ________________________________ Name: Name: Title: Title: CAPITAL VENTURES INTERNATIONAL RADCLIFFE SPC, LTD. FOR AND ON BY: HEIGHTS CAPITAL MANAGEMENT, INC. ITS BEHALF OF THE CLASS A AUTHORIZED AGENT CONVERTIBLE CROSSOVER SEGREGATED PORTFOLIO BY: RG CAPITAL MANAGEMENT, L.P. BY: RCG MANAGEMENT COMPANY, LLC By: __________________________________ Name: By: ________________________________ Title: Name: Title: YA GLOBAL INVESTMENTS, L.P. CRANSHIRE CAPITAL, LP By: __________________________________ By: ________________________________ Name: Name: Title: Title: PORTSIDE GROWTH AND OPPORTUNITY FUND By: __________________________________ Name: Title: 5 DRAFT 11/9/2007 RELEASE EXHIBIT A SCHEDULE OF EARTH BIOFUELS, INC. SUBSIDIARIES - -------------------------------------------------------------------------------- SUBSIDIARY - -------------------------------------------------------------------------------- EARTH LNG, INC. - -------------------------------------------------------------------------------- APPLIED LNG TECHNOLOGIES, USA, LLC - -------------------------------------------------------------------------------- ALTERNATIVE DUAL FUELS, INC. D/B/A APOLLO LEASING, INC. - -------------------------------------------------------------------------------- ARIZONA LNG, LLC - -------------------------------------------------------------------------------- FLEET STAR, INC. - -------------------------------------------------------------------------------- DURANT BIOFUELS, LLC - -------------------------------------------------------------------------------- EARTH BIOFUELS, TECHNOLOGY CO, LLC D/B/A ADVANCED BIOFUELS TECHNOLOGY, LLC - -------------------------------------------------------------------------------- EARTH BIOFUELS DISTRIBUTION CO - -------------------------------------------------------------------------------- EARTH BIOFUELS OF CORDELE, LLC - -------------------------------------------------------------------------------- B20 CUSTOMS LLC - -------------------------------------------------------------------------------- EARTH BIOFUELS OPERATING, INC. - -------------------------------------------------------------------------------- EARTH BIOFUELS RETAIL FUELS, CO. - -------------------------------------------------------------------------------- EARTH ETHANOL, INC. - -------------------------------------------------------------------------------- EARTH ETHANOL OF WASHINGTON LLC - -------------------------------------------------------------------------------- 6 DRAFT 11/9/2007 RELEASE EXHIBIT B SCHEDULE OF NOTEHOLDERS - -------------------------------------------------------------------------------- NOTEHOLDERS - -------------------------------------------------------------------------------- CASTLERIGG MASTER INVESTMENTS LTD. - -------------------------------------------------------------------------------- PORTSIDE GROWTH AND OPPORTUNITY FUND - -------------------------------------------------------------------------------- YA GLOBAL INVESTMENTS, L.P. FORMERLY KNOWN AS CORNELL CAPITAL PARTNERS, LP - -------------------------------------------------------------------------------- EVOLUTION MASTER FUND LTD. SPC., SEGREGATED PORTFOLIO M - -------------------------------------------------------------------------------- RADCLIFFE SPC, LTD. FOR AND ON BEHALF OF THE CLASS A CONVERTIBLE CROSSOVER SEGREGATED PORTFOLIO - -------------------------------------------------------------------------------- CRANSHIRE CAPITAL L.P. - -------------------------------------------------------------------------------- CAPITAL VENTURES INTERNATIONAL - -------------------------------------------------------------------------------- 7 DRAFT 11/9/2007 EXHIBIT C ESCROW AGREEMENT EX-99 4 exhibit_20.txt EXHIBIT 20 - DRAFT OF AFFIDAVIT OF CONFESSION OF JUDGMENT DRAFT 11/12/2007 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK - ------------------------------------------ AFFIDAVIT OF CASTLERIGG MASTER INVESTMENTS, LTD. CONFESSION OF JUDGMENT Plaintiff Index No. -against- EARTH BIOFUELS, INC. Defendant. - ------------------------------------------ STATE OF NEW YORK ) ) ss COUNTY OF NEW YORK ) Mr. Dennis McLaughlin, being duly sworn, deposes and says: 1. I am the Chief Executive Officer of Earth Biofuels, Inc. ("EBOF") the Defendant in the above-entitled action, whose corporate address is 3001 Knox Street, Suite 403, Dallas, TX 75205. 2. I am authorized by EBOF to confess judgment on EBOF's behalf, in favor of plaintiff, Castlerigg Master Investments, Ltd. ("Castlerigg") for the sum of $80,919,551 (as of September 28, 2007); 3. Pursuant to Section 3218 of the New York Civil Practice Law and Rules, I hereby confess judgment on EBOF's behalf, in favor of Castlerigg for $80,919,551 (as of September 28, 2007), and authorize it and its parents, subsidiaries, affiliates, agents, representatives, attorneys, executors, administrators, directors, officers, shareholders, employees, successors, assigns, predecessors, transferees, and insurers to enter judgment in the Supreme Court of the State of New York, County of New York, against EBOF in the amount of $80,919,551 (as of September 28, 2007). 4. This confession of judgment is for a debt due and owing to Castlerigg, and arises under certain a promissory note dated July 24, 2006 issued pursuant to a Securities Purchase Agreement dated July 24, 2006 (the "Transaction Documents"). 5. The debt is unconditionally due and owing to Castlerigg by virtue of numerous events of default arising under the Transaction Documents which have been acknowledged by EBOF in an interim restructuring agreement dated November [__], 2007 (the "Interim Restructuring Agreement") and as such are undisputed. DRAFT 11/12/2007 6. Pursuant to the Interim Restructuring Agreement, EBOF also agreed and acknowledged that it is indebted to the Castlerigg in the amount of $80,919,551 (as of September 28, 2007), and confesses judgment herein on that debt. 7. Further, as set forth in Section 3 of the Interim Restructuring Agreement if EBOF failed to meet the conditions set forth in Section 3 of the Interim Restructuring Agreement by the dates specified therein, then EBOF authorized the Castlerigg to file this Affidavit of Confession of Judgment in which EBOF confesses judgment in favor of Castlerigg and against EBOF in the amount of $80,919,551 (as of September 28, 2007). 8. This confession of judgment does not violate section 3201 of the New York Civil Practice Law and Rules because it was "not executed prior to the time a default in the payment of an installment occurs in connection with the purchase of fifteen hundred dollars or less of any commodities for any use other than a commercial or business use upon any plan of deferred payments whereby the price or cost is payable in two or more installments." 9. This confession of judgment is not for the purpose of securing plaintiff against a contingent liability. By: -------------------------------- Dennis McLaughlin Chief Executive Officer Earth Biofuels, Inc. Sworn to before me this _______ day of _____________, 2007 - ---------------------------- NOTARY PUBLIC 2 EX-99 5 exhibit_21.txt EXHIBIT 21 - DRAFT OF SUBSIDIARY GUARANTY AGREEMENT DRAFT 11/9/2007 GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (the "GUARANTY") is executed as of November [__], 2007, by the entities listed on the SCHEDULE OF EBOF SUBSIDIARIES attached hereto as EXHIBIT A (each, a "GUARANTOR," and collectively, the "GUARANTORS"), for the ratable benefit of the lenders listed that are signatories hereto (collectively, the "LENDERS"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Radcliffe SPC, Ltd. for and on behalf of the Class A Convertible Crossover Segregated Portfolio ("RADCLIFFE"), Castlerigg Master Investments Ltd. ("CASTLERIGG"), and Capital Ventures International ("CVI"; collectively, the "INITIAL BRIDGE LENDERS") are parties to a Securities Purchase Agreement, dated as of June 7, 2006 (the "INITIAL BRIDGE SECURITIES PURCHASE AGREEMENT") with Earth Biofuels, Inc. ("EBOF"), pursuant to which EBOF issued, among other things, warrants to purchase 1,500,000 shares of common stock, $0.001 par value (the "COMMON STOCK"), of EBOF at the exercise price of $2.93 (the "INITIAL BRIDGE WARRANTS") and in connection with the Initial Bridge Securities Purchase Agreement, EBOF executed a Registration Rights Agreement (the "INITIAL BRIDGE REGISTRATION RIGHTS AGREEMENT," collectively with the Initial Bridge Securities Purchase Agreement and the Initial Bridge Warrants, the "INITIAL BRIDGE TRANSACTION DOCUMENTS") under which it agreed to cooperate in the registration of the securities under the Initial Bridge Securities Purchase Agreement; WHEREAS, Castlerigg (the "SECOND BRIDGE LENDER") is a party to a Securities Purchase Agreement, dated as of July 10, 2006 (the "SECOND BRIDGE SECURITIES PURCHASE AGREEMENT") with EBOF, pursuant to which EBOF issued, among other things, warrants to purchase 1,500,000 shares of Common Stock at the exercise price of $2.50 (the "SECOND BRIDGE WARRANTS") and in connection with the Second Bridge Securities Purchase Agreement, EBOF executed a Registration Rights Agreement (the "SECOND BRIDGE REGISTRATION RIGHTS AGREEMENT," collectively with the Second Bridge Securities Purchase Agreement, Second Bridge Warrants, the "SECOND BRIDGE TRANSACTION DOCUMENTS") under which it agreed to cooperate in the registration of the securities under the Second Bridge Securities Purchase Agreement; WHEREAS, Radcliffe, Castlerigg, CVI, YA Global Investments, L.P. (formerly known as Cornell Capital, L.P. ("YORKVILLE")), Cranshire Capital L.P. ("CRANSHIRE"), Portside Growth and Opportunity Fund ("PORTSIDE"), Evolution Master Fund Ltd. SPC, Segregated Portfolio M ("EVOLUTION"), and Kings Road Investments Ltd. ("KINGS Road"; collectively, the "NOTEHOLDERS") are parties to a Securities Purchase Agreement, dated as of July 24, 2006 (the "SECURITIES PURCHASE AGREEMENT") with EBOF, pursuant to which EBOF issued (i) 8% Senior Convertible Notes (collectively, the "NOTES") in the aggregate principal amount of $52.5 million, which were unsecured and convertible into shares of Common Stock at $2.90 per share, and (ii) warrants to purchase in excess of 9,000,000 shares of common stock of EBOF at the exercise price of $2.90 (the "WARRANTS") and in connection with the Securities Purchase Agreement, EBOF executed a Registration Rights Agreement (the "REGISTRATION RIGHTS Agreement," collectively with the Initial Bridge Transaction Documents, the Second Bridge Transaction Documents, the Securities Purchase Agreement, Notes, and Warrants, the "TRANSACTION DOCUMENTS") under which it agreed to cooperate in the registration of the securities under the Securities Purchase Agreement; DRAFT 11/9/2007 WHEREAS, certain Noteholders individually delivered an Event of Default Redemption Notice to EBOF identifying various events of default under the Notes and demanding that EBOF redeem the Noteholders' interest in the Notes at the so-called Event of Default Redemption Price, and EBOF failed to remit the Event of Default Redemption Price; WHEREAS, the Guarantors acknowledge that Events of Default (as defined in the Transaction Documents) have occurred and are continuing; WHEREAS, EBOF and the Guarantors acknowledge that the aggregate amount of the outstanding amount due and owing to the Noteholders is $100,651,173.00 (as of September 28, 2007), plus fees, costs and expenses, and such amount is payable to the Noteholders without set-off, counterclaim, deduction, offset or defense (the "TOTAL Debt"); WHEREAS, on July 11, 2007, Radcliffe, Yorkville, Portside, Castlerigg and Evolution commenced an involuntary bankruptcy proceeding against EBOF pursuant to Title 11 of the United States Code (the "BANKRUPTCY CODE") in the United States Bankruptcy Court for the District of Delaware, Case No. 07-10928 (CSS) (the "BANKRUPTCY CASE"); WHEREAS, EBOF wishes to explore the possibility of restructuring and modifying the existing rights and obligations under the Transaction Documents with the Noteholders through one or more definitive documents to be negotiated during the course of the next 6 to 12 months (the "RESTRUCTURING TRANSACTION"); WHEREAS, at EBOF's request, the Lenders are willing, subject to and on the terms and conditions set forth in the Interim Restructuring Agreement (as defined below) and the documents to be executed in connection therewith, to forbear from exercising rights and remedies under the Transaction Documents and to consent to dismissal of the Bankruptcy Case in exchange for the terms hereof and of the Interim Restructuring Agreement and the other documents to be executed in connection therewith; WHEREAS, pursuant to the Interim Restructuring Agreement, dated November [__], 2007 (the "INTERIM RESTRUCTURING AGREEMENT"), EBOF has, among other things, executed confessions of judgment (the "CONFESSIONS OF JUDGMENT"), which shall not be filed until the occurrence of certain events specified in the Interim Restructuring Agreement; WHEREAS, to facilitate a consensual restructuring and the dismissal of the Bankruptcy Case, without which the Guarantors could themselves end up in bankruptcy and without the support of EBOF, the Guarantors have agreed to guarantee the full amount of the Total Debt for the ratable benefit of the Lenders. WHEREAS, interests in each Guarantor are owned directly or indirectly (as the case may be) by EBOF, and each Guarantor will directly benefit from the restructuring negotiations. NOW, THEREFORE, as an inducement to the Lenders to negotiate a restructuring, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: DRAFT 11/9/2007 ARTICLE I NATURE AND SCOPE OF GUARANTY Section 1.1 GUARANTY OF DEBT. Each Guarantor hereby irrevocably, unconditionally, and jointly and severally guarantees for the ratable benefit(1) of each Lender the prompt payment of each such Lender's Pro Rata Share of the Total Debt, which shall be immediately due and payable upon demand after the occurrence of any of the following events: (a) prior to the Restructuring Consummation Deadline (as defined in section 1.1(e) below), either (x) an order for relief is entered in a case under the Bankruptcy Code with respect to Dennis McLaughlin, EBOF, or any Subsidiary, or (y) an involuntary bankruptcy petition is filed against EBOF or any Subsidiary and such petition is not dismissed on or before sixty (60) days after the date such petition is filed; (b) failure of EBOF to execute security documents (in form and substance acceptable to the Lenders holding 66?% of the aggregate face amount of the Notes then outstanding (the "REQUIRED LENDERS"), as determined by the Required Lenders in their sole discretion) sufficient to provide the Lenders with liens, subject only to any then-valid existing liens, on all of EBOF's assets to secure EBOF's obligations under the Confessions of Judgment and/or the Transaction Documents on or before ten (10) days after the date that the order dismissing the Bankruptcy Case is entered on the docket(2); (c) failure of all of EBOF's subsidiaries (collectively, the "SUBSIDIARIES") to execute security documents (in form and substance acceptable to the Required Lenders as determined by the Required Lenders in their sole discretion) in favor of the Lenders, subject only to any then-valid existing liens, securing their respective obligations under this Guaranty on or before ten (10) days after the Dismissal Date; (d) failure of EBOF and Subsidiaries to execute a term sheet with the material terms of a restructuring (in form and substance acceptable to the Required Lenders in their sole discretion) (the - ---------------------- (1) The ratable benefit will be determined by calculating the Lender's pro rata share ("PRO RATA SHARE"), which means the ratio determined by dividing (x) the face amount of the Notes then held by such Lender by (y) the face amount of Notes then held by all Lenders. (2) The date that the order dismissing the Bankruptcy Case is entered on the docket and such order is not subject to any stay shall be referred to herein as the "DISMISSAL DATE." DRAFT 11/9/2007 "RESTRUCTURING TERM SHEET") on or before thirty (30) days after the Dismissal Date; (e) failure of EBOF and Subsidiaries to consummate the transactions contemplated in the Restructuring Term Sheet fully (as determined by the Required Lenders in their reasonable discretion) on or before one hundred and twenty (120) days after the Dismissal Date (the "RESTRUCTURING CONSUMMATION DEADLINE"); (f) any action is commenced to void, avoid, invalidate, subordinate, recharacterize, reduce or recover (in whole or in part) any or all of the Release, the McLaughlin Guaranty, the Noteholders' claims against EBOF, the Confessions of Judgment, this Guaranty (each as described in the Interim Restructuring Agreement and collectively, the "COLLATERAL DOCUMENTS"), any claim of the Lenders under any of the Notes or the any of other Transaction Documents, any lien granted to secure any such claim or any obligation under any of the Collateral Documents or any of the Transaction Documents (including, without limitation, the actions described in sections 5(b) and (c) of the Interim Restructuring Agreement), or any payment made in respect of any such claim or obligation; or (g) EBOF or any Subsidiary grants or permits to exist any lien not in existence as of the date of this Guaranty on any of its assets. Section 1.2 ELIMINATION OF GUARANTY. If EBOF and its Subsidiaries fully consummate the transactions contemplated by the Restructuring Term Sheet (as determined by the Required Lenders in their reasonable discretion) on or before the Restructuring Consummation Deadline, this Guaranty shall terminate and no longer be of any force and effect unless there is an action commenced seeking to void, avoid, invalidate, subordinate, recharacterize, reduce or recover (in whole or in part) any such transactions or any lien granted to secure, or any payment made on, any obligation owing to the Lenders in connection with any such transactions, any of the Transaction Documents, or any of the Collateral Documents. Section 1.3 NATURE OF GUARANTY. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. The obligations of each Guarantor to the Lenders under this Guaranty shall be joint and several. This Guaranty shall not be discharged by the assignment or negotiation of all or part of the Notes. Section 1.4 GUARANTEED OBLIGATIONS NOT REDUCED BY OFFSET. The Guaranty and obligations of the Guarantors to the Lenders shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of EBOF or any of its Subsidiaries, or any other party, against the Lenders. Section 1.5 PAYMENT BY GUARANTOR. If all or any part of the obligations under this Guaranty shall not be punctually paid when due, the Guarantors shall, immediately upon demand by the Lenders pay in lawful money of the United States of America, the amounts due to DRAFT 11/9/2007 the Lenders at the addresses as set forth herein for the Lenders. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof. Section 1.6 NO DUTY TO PURSUE OTHERS. It shall not be necessary for the Lenders (and the Guarantors hereby waive any rights that the Guarantors may have to require the Lenders), in order to enforce the obligations of the Guarantors hereunder, first to (a) institute suit or exhaust its remedies against EBOF or any Subsidiary or others liable under the Transaction Documents or the Confessions of Judgment or any other person, (b) enforce the Lenders' rights against any collateral which shall ever have been given to secure any of the obligations of EBOF or its Subsidiaries, (c) enforce the Lenders' rights against any other guarantors, (d) join EBOF or its Subsidiaries or any others liable on the Total Debt in any action seeking to enforce this Guaranty, or (f) resort to any other means of obtaining payment of the Total Debt. The Lenders shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Total Debt. Section 1.7 PAYMENT OF EXPENSES. In the event that any Guarantor should breach or fail to timely perform any provision of this Guaranty, the Guarantors shall, immediately upon demand by the Lenders, pay the Lenders all reasonable out-of-pocket costs and expenses (including court costs and attorneys' fees) incurred by the Lenders in the enforcement hereof or the preservation of the Lenders' rights hereunder. For the avoidance of doubt, the foregoing payment obligation shall be a joint and several obligation of the Guarantors. Section 1.8 EFFECT OF BANKRUPTCY. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, the Lenders must rescind or restore any payment, or any part thereof, received by the Lenders in satisfaction of the obligations hereunder, any prior release or discharge from the terms of this Guaranty given to Guarantors by the Lenders shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of the Guarantors that the Guarantors' obligations hereunder shall not be discharged except by the Guarantors' indefeasible payment of such obligations and then only to the extent of such performance. Section 1.9 WAIVER OF SUBROGATION, REIMBURSEMENT AND CONTRIBUTION. Notwithstanding anything to the contrary contained in this Guaranty, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of the Lenders), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from EBOF, its Subsidiaries, or any other party liable for payment of any or all of the Total Debt for any payment made by any Guarantor under or in connection with this Guaranty or otherwise. DRAFT 11/9/2007 ARTICLE II EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S OBLIGATIONS Each Guarantor hereby consents and agrees to each of the following, and agrees that the Guarantors' obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) except as otherwise expressly provided herein which the Guarantors might otherwise have as a result of or in connection with any of the following: Section 2.1 MODIFICATIONS. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Total Debt under the Transaction Documents. Section 2.2 ADJUSTMENT. Any adjustment, indulgence, forbearance or compromise that might be granted or given by the Lenders to EBOF. Section 2.3 CONDITION OF EBOF, SUBSIDIARIES, OR GUARANTORS. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of EBOF or any Subsidiary or any other party at any time liable for the payment of all or part of the Total Debt; or any dissolution of EBOF or any Subsidiary, or any sale, lease or transfer of any or all of the assets of EBOF or any Subsidiary, or any changes in the shareholders, partners or members of EBOF or any Subsidiary; or any reorganization of EBOF, any Subsidiary, or the Guarantors. Section 2.4 INVALIDITY OF GUARANTEED OBLIGATIONS. The invalidity, illegality or unenforceability of all or any part of the Total Debt, or any document or agreement executed in connection with the Total Debt, for any reason whatsoever is illegal, uncollectible or unenforceable. Section 2.5 RELEASE OF OBLIGORS. Any full or partial release of the liability of EBOF or any Subsidiary on the Total Debt or any part thereof, or of any co-guarantors, or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Total Debt, or any part thereof. Section 2.6 OTHER COLLATERAL. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Total Debt. Section 2.7 OFFSET. Any existing or future right of offset, claim or defense of EBOF or any Subsidiary against Lenders, or any other person, or against payment of the Total Debt, whether such right of offset, claim or defense arises in connection with the Total Debt or otherwise. Section 2.8 MERGER. The reorganization, merger or consolidation of EBOF or any Subsidiary into or with any other corporation or entity. DRAFT 11/9/2007 Section 2.9 PREFERENCE. Any payment by EBOF or any Subsidiary to Lenders is held to constitute a preference under bankruptcy laws, or for any reason Lenders are required to refund such payment or pay such amount to EBOF or any Subsidiary or someone else. ARTICLE III REPRESENTATIONS AND WARRANTIES To induce the Lenders to negotiate a restructuring of the Total Debt, each Guarantor represents and warrants to the Lenders as follows: Section 3.1 BENEFIT. EBOF is the direct or indirect owner of interests in each Guarantor (as the case may be), and each Guarantor has received, or will receive, direct and indirect benefits from the making of this Guaranty. Section 3.2 FAMILIARITY AND RELIANCE. Each Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of EBOF and its Subsidiaries; however, no Guarantor is relying on such financial condition as an inducement to enter into this Guaranty. Section 3.3 NO REPRESENTATION BY LENDERS. None of the Lenders, or any other party has made any representation, warranty or statement to any Guarantor in order to induce a Guarantor to execute this Guaranty. Section 3.4 GUARANTORS' FINANCIAL CONDITION. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, each Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay all of its obligations and liabilities. Section 3.5 LEGALITY. The execution, delivery and performance by each Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of each Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. Section 3.6 SURVIVAL. All representations and warranties made by the Guarantors herein shall survive the execution hereof. DRAFT 11/9/2007 ARTICLE IV MISCELLANEOUS Section 4.1 EFFECTIVE DATE. This Guaranty shall be placed into escrow pursuant to an escrow agreement (the form of which is attached hereto as Exhibit B) and shall be released from escrow and become effective as of the Dismissal Date. Section 4.2 LIMITATION OF LIABILITY. Each Guarantor hereby confirms that it intends that its obligations under this Guaranty will not constitute fraudulent transfers or conveyances under the Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar foreign, federal, or state law. To the extent necessary to effectuate the foregoing intention, each Guarantor irrevocably agrees that its obligations under this Guaranty at any time shall be limited to the maximum amount as will result in such obligations not constituting a fraudulent transfer or conveyance under such foreign, federal, or state law. Section 4.3 OTHER CONTRACTUAL OBLIGATIONS. To the extent that any provision of this Guaranty results in an event of default under any agreement entered between any Guarantor and a third party before the effective date of this Guaranty, such provision of this Guaranty shall become null and void only to the extent such provision results in the event of default. Section 4.4 WAIVER. No failure to exercise, and no delay in exercising, on the part of the Collateral Agent or Lenders, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of the Lenders hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. (a) NOTICES. Any written notice required to be given under this Guaranty shall be sent to the following by mail, electronic mail or facsimile, and shall be deemed given upon such mailing and sending by facsimile: If to EBOF or the Guarantors: 3001 Knox Street, Suite 403 Dallas, Texas 75205 Telephone: (214) 389-9800 Facsimile: (214) 389-9805 Attention: Dennis McLaughlin DRAFT 11/9/2007 with a copy to: Akin Gump Strauss Hauer & Feld LLP 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Telephone: (214) 969-4710 Facsimile: (214) 969-4343 Attention: Charles R. Gibbs, Esq. If to Sandell (to the extent a signatory hereto) 40 West 57th Street 26th Floor New York, New York 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu (chacioglu@sandellmgmt.com) Matthew Pliskin (mpliskin@sandellmgmt.com) with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: David M. Hillman, Esq.(david.hillman@srz.com) Jeffrey S. Sabin, Esq.(jeffrey.sabin@srz.com) If to Radcliffe (to the extent a signatory hereto): c/o RG Capital Management, L.P. 3 Bala Plaza - East, Suite 501 Bala Cynwyd, PA 19004 Telephone: (610) 617-5911 Facsimile: (610) 617-0570 Attention: Gerald F. Stahlecker (gstahlecker@radcliffefunds.com) with a copy to: Wilmer Cutler Pickering Hale and Dorr LLP 399 Park Avenue New York, New York 10022 Telephone: (212) 230-8800 DRAFT 11/9/2007 Facsimile: (212) 230-8888 Attention: Philip D. Anker, Esq. (Philip.Anker@wilmerhale.com) If to Yorkville(to the extent a signatory hereto): 101 Hudson Street, Suite 3700 Jersey City, New Jersey 07303 Attention: Eric Hansen, Esq. (ehansen@yorkvilleadvisors.com) with a copy to: Baker Botts L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Telephone: (214) 953-6571 Facsimile: (214) 953-6503 Attention: C. Luckey McDowell, Esq. (luckey.mcdowell@bakerbotts.com) If to Cranshire (to the extent a signatory hereto): Greenberg Traurig LLP 77 W. Wacker Dr., Suite 2500 Chicago, Illinois 60601 Telephone: (312) 456-8448 Facsimile: (312) 456-8435 Attention: Todd Mazur, Esq. (mazurt@gtlaw.com) Peter Lieberman (liebermanp@gtlaw.com) If to Evolution (the extent it executes this Agreement): c/o Evolution Capital Management LLC 2425 Olympic Boulevard, Suite 120E Santa Monica, California 90404 Telephone: (310) 315-8866 Attention: Brian S. Yeh (brian.yeh@evofund.com) with a copy to: Cadwalader, Wickersham & Taft LLP One World Financial Center New York, New York 10281 Telephone: (212) 504-6373 Facsimile: (212) 504-6666 Attention: Gregory M. Petrick, Esq. (gregory.petrick@cwt.com) DRAFT 11/9/2007 If to Kings Road (the extent it executes this Agreement): c/o Polygon Investment Partners LP 598 Madison Avenue, 14th Floor New York, New York 10022 Telephone: (212) 359-7300 Facsimile: (212) 359-7303 Attention: Erik M.W. Casperson (ecaspersen@polygoninv.com) Brandon L. Jones (bjones@polygoninv.com) with a copy to: Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Telephone: (213) 485-1234 Facsimile: (213) 891-8763 Attention: Russell Sauer, Esq. (russ.sauer@lw.com) If to CVI (the extent it executes this Agreement): c/o Heights Capital Management 101 California Street, Suite 3250 San Francisco, California 94111 Telephone: (415) 403-6510 Facsimile: (610) 617-3896 Attention: Michael Spolan (Michael.Spolan@sig.com) with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers, LLP 919 Market Street, Suite 1000 Wilmington, Delaware 19801 Telephone: (302) 426-1189 Facsimile: (302) 426-9193 Attention: Richard M. Beck, Esq. (rbeck@klehr.com) If to Portside (the extent it executes this Agreement): c/o Ramius Capital Group, L.L.C. 666 Third Avenue, 26th Floor New York, New York 10017 Telephone: (212) 845-7955 Facsimile: (212) 201-4802 Attention: Jeffrey Smith (jsmith@ramius.com) Peter Feld (pfeld@ramius.com) Owen Littman (olittman@ramius.com) DRAFT 11/9/2007 with a copy to: Hennigan, Bennett & Dorman 601 South Figueroa Street, Suite 3300 Los Angeles, California 90017 Telephone: (213) 694-1012 Facsimile: (213) 694-1234 Attention: Bruce Bennett, Esq. (bennettb@hbdlawyers.com) Section 4.5 GOVERNING LAW, JURISDICTION, JURY TRIAL. All questions concerning the construction, validity, enforcement and interpretation of this Guaranty 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 jurisdiction other than the State of New York. Each Guarantor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each Guarantor hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Guaranty and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED HEREBY. Section 4.6 AMENDMENTS. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced. Section 4.7 PARTIES BOUND; ASSIGNMENT; JOINT AND SEVERAL. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; PROVIDED, HOWEVER, that no Guarantor may, without the prior written consent of the Lenders, assign any of its rights, powers, duties or obligations hereunder. Section 4.8 HEADINGS. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty. Section 4.9 RECITALS. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein. DRAFT 11/9/2007 Section 4.10 RIGHTS AND REMEDIES. The exercise by the Lenders of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. Section 4.11 Intentionally Omitted. Section 4.12 EXTENSIONS OF DEADLINES AND NOTICE OF TRIGGER EVENTS. Any deadline under this Guaranty, including but not limited to, the timeframes set forth in sections 1.1(a)-(g) herein may be extended by the mutual written agreement of the Lenders and EBOF (on behalf of the Guarantors). In the event of any default under this Guaranty, including but not limited to, the expiration of any deadline set forth in sections 1.1(a)-(g), the defaulting party shall be entitled to three (3) business days' notice of the default and the opportunity to cure such default. Section 4.13 RECOVERY BY LENDERS. Any proceeds recovered by any Lender under this Guaranty in excess of its Pro Rata Share of the Total Debt shall be held by such Lender in trust for the pro rata benefit of the other Lenders and distributed accordingly. This provision shall survive termination of this Guaranty. Section 4.14 AFTER ACQUIRED CLAIMS. In the event that a Lender acquires (and continues to hold) the Notes and Warrants (the "EXCLUDED SECURITIES") under the Transaction Document of a Noteholder that is not a signatory hereto (an "EXCLUDED NOTEHOLDER"), such Excluded Securities acquired (and held) by such Lender shall be deemed to be Notes and Warrants of such Lender governed by the terms and conditions of this Guaranty and the Collateral Documents (and the benefits thereunder) as if such Excluded Securities were held by such Lender as of the date of this Guaranty (but only for so long as such Excluded Securities are held by such Lender). The Pro Rata Share of any Lender that acquires Notes from an Excluded Noteholder (or that transfers any portion of its Notes) shall be adjusted accordingly. Section 4.15 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF THE GUARANTORS WITH RESPECT TO THE GUARANTORS' GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN OR AMONG THE GUARANTORS AND THE LENDERS, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN OR AMONG THE GUARANTORS AND ANY LENDER. DRAFT 11/9/2007 EXECUTED as of the day and year first above written. Earth LNG, Inc. Earth Biofuels, Technology Co, LLC d/b/a Advanced Biofuels Technology, LLC By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Applied LNG Technologies, USA, LLC Earth Biofuels Distribution Co. By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Alternative Dual Fuels, Inc. Earth Biofuels of Cordele, LLC d/b/a Apollo Leasing, Inc. By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Arizona LNG, LLC B20 Customs LLC By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Fleet Star, Inc. Earth Biofuels Operating, Inc. By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Durant Biofuels, LLC Earth Biofuels Retail Fuels, Co. By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: DRAFT 11/9/2007 Earth Ethanol of Washington LLC Earth Ethanol, Inc. By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: DRAFT 11/9/2007 IN WITNESS WHEREOF, the Lenders below have caused their respective signature page to this Guaranty to be duly executed as of the date first written above. Castlerigg Master Investments Ltd. Kings Road Investments Ltd. By: Sandell Asset Management Corp. By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Evolution Master Fund Ltd. SPC, Capital Ventures International Segregated Portfolio M By: Heights Capital Management, Inc. its authorized agent By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Radcliffe SPC, Ltd. for and on behalf YA Global Investments, L.P. (formerly, of the Class A Convertible Crossover Cornell Capital Partners, LP Segregated Portfolio By: RG Capital Management Company, By: Yorkville Advisors, LLC LLC Its: General Partner By: RGC Management Company, LLC By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: Cranshire Capital, LP Portside Growth and Opportunity Fund By: By: ----------------------------- ------------------------------------ Name: Name: Title: Title: DRAFT 11/9/2007 EXHIBIT A SCHEDULE OF EBOF SUBSIDIARIES SUBSIDIARY - ------------------------------------------------------------------------------- Earth LNG, Inc. Applied LNG Technologies, USA, LLC Alternative Dual Fuels, Inc. d/b/a Apollo Leasing, Inc. Arizona LNG, LLC Fleet Star, Inc. Durant Biofuels, LLC Earth Biofuels, Technology Co, LLC d/b/a Advanced Biofuels Technology, LLC Earth Biofuels Distribution Co Earth Biofuels of Cordele, LLC B20 Customs LLC Earth Biofuels Operating, Inc. Earth Biofuels Retail Fuels, Co. Earth Ethanol, Inc. Earth Ethanol of Washington LLC DRAFT 11/9/2007 EXHIBIT B ESCROW AGREEMENT EX-99 6 exhibit_22.txt EXHIBIT 22 - DRAFT OF ESCROW AGREEMENT DRAFT 11/9/2007 ESCROW AGREEMENT Escrow Agreement dated as of November [__], 2007 (the "AGREEMENT DATE") among (i) SCHULTE ROTH & ZABEL LLP ("SRZ"); (ii) LENDERS that are signatories hereto (collectively, the "LENDERS"); (iii) EARTH BIOFUELS, INC., a Delaware Corporation, ("EBOF"); (iv) DENNIS MCLAUGHLIN, ("MCLAUGHLIN") an individual; and (v) entities listed on the SCHEDULE OF EBOF SUBSIDIARIES attached hereto as Schedule A (individually, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES"). SRZ, the Lenders, EBOF, McLaughlin, and the Subsidiaries shall each be referred to herein as a "PARTY" and collectively, the "PARTIES." WHEREAS, EBOF and certain Noteholders(1) are parties to a Securities Purchase Agreement, dated as of July 24, 2006 (the "SECURITIES PURCHASE AGREEMENT"), pursuant to which EBOF issued (i) 8% Senior Convertible Notes in the aggregate principal amount of $52.5 million, which were unsecured and convertible into shares of EBOF's common stock at $2.90 per share, and (ii) warrants to purchase in excess of 9,000,000 shares of common stock of EBOF at the exercise price of $2.90; and in connection with the Securities Purchase Agreement, EBOF executed a Registration Rights Agreement under which it agreed to cooperate in the registration of the securities under the Securities Purchase Agreement. WHEREAS, on July 11, 2007, Radcliffe, Yorkville, Castlerigg, Portside and Evolution (collectively, the "PETITIONING CREDITORS") commenced an involuntary bankruptcy proceeding against EBOF pursuant to Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the "BANKRUPTCY COURT"), Case No. 07-10928 (CSS) (the "BANKRUPTCY CASE"); WHEREAS, pursuant to the Interim Restructuring Agreement dated November [__], 2007 (the "INTERIM RESTRUCTURING AGREEMENT"), the parties thereto agreed to execute the Interim Restructuring Agreement and related exhibits and to place the executed agreement and related exhibits in escrow with SRZ pending the release condition described below; WHEREAS, pursuant to the Purchase and Sale Agreements, each dated November [__], 2007 (the "PURCHASE AND SALE AGREEMENTS"), the parties thereto agreed to execute the Purchase and Sale Agreements and to place each executed agreement in escrow with SRZ pending the release condition described below; WHEREAS, pursuant to the Release, dated November [__], 2007 (the "RELEASE") the parties thereto agreed to execute the Release and to place the executed Release in escrow with SRZ pending the release condition described below; WHEREAS, pursuant to the Guaranty by Dennis McLaughlin, dated November [__], 2007 (the "MCLAUGHLIN GUARANTY") the parties thereto agreed to execute the McLaughlin - -------------------------- (1) "Noteholders" shall mean Castlerigg Master Investments Ltd. ("CASTLERIGG"); Radcliffe SPC, Ltd. for and on behalf of the Class A Convertible Crossover Segregated Portfolio ("RADCLIFFE"); Cranshire Capital L.P. ("CRANSHIRE"); and YA Global Investments, L.P. (formerly known as Cornell Capital, L.P. ("YORKVILLE")), Portside Growth and Opportunity Fund ("PORTSIDE"), Capital Ventures International, Evolution Master Fund Ltd. SPC, Segregated Portfolio M ("EVOLUTION"), and Kings Road Investments Ltd. DRAFT 11/9/2007 Guaranty and to place the executed McLaughlin Guaranty in escrow with SRZ pending the release condition described below; WHEREAS, pursuant to the Guaranty by the Subsidiaries, dated November [__], 2007 (the "SUBSIDIARY GUARANTY") the parties thereto agreed to execute the Subsidiary Guaranty and to place the executed Subsidiary Guaranty in escrow with SRZ pending the release condition described below; WHEREAS, pursuant to the Confessions of Judgment, each dated November [__], 2007 (the "CONFESSIONS OF JUDGMENT") EBOF agreed to execute the Confessions of Judgment and to place the executed Confessions of Judgment in escrow with SRZ pending the release condition described below; WHEREAS, SRZ has agreed to serve as escrow agent pursuant to the terms and conditions hereof and to hold and release the (i) Interim Restructuring Agreement; (ii) Purchase and Sale Agreements; (iii) Release; (iv) McLaughlin Guaranty; (v) Subsidiary Guaranty; and (vi) Confessions of Judgment (collectively, the "ESCROW DOCUMENTS") in accordance with section 3 of this Escrow Agreement. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, the Parties hereto agree as follows: 1. APPOINTMENT OF AND ACCEPTANCE BY SRZ. The Parties hereby appoint SRZ to serve as escrow agent hereunder. SRZ hereby accepts such appointment and, upon receipt of the Escrow Documents, agrees to hold and release the Escrow Documents in accordance with this Escrow Agreement. SRZ does not have any interest in the Escrow Documents but is serving as escrow agent only and having only possession thereof. 2. DELIVERY OF ESCROW DOCUMENTS TO SRZ. Each Party hereto agrees to deliver original versions of the executed Escrow Documents (applicable to such Party) to SRZ. 3. RELEASE CONDITIONS. SRZ shall hold the Escrow Documents until the date that is the earlier of (i) an order dismissing the Bankruptcy Case (a "DISMISSAL ORDER") is entered on the Bankruptcy Court's docket and such order is not subject to a stay (the "DISMISSAL DATE"); and (ii) December 21, 2007. If the Dismissal Date occurs on or before December 21, 2007 (or such later date as may be agreed in writing by all Lenders prior to the expiration of such date or dates), the provisions of the Escrow Documents not already effective shall become effective upon the Dismissal Date with no further action required by any Party, and SRZ shall release the Escrow Documents to the respective Parties that are signatories to such documents. If the Dismissal Date fails to occur on or before December 21, 2007 (or such later date as may be agreed in writing by all Lenders prior to the expiration of such date or dates) (a "FAILURE EVENT"), then, (a) EBOF shall immediately file a notice of withdrawal of the joint motion to dismiss the Bankruptcy Case (the "WITHDRAWAL NOTICE"), which the Lenders that are Petitioning Creditors hereby authorize upon the occurrence of a Failure Event (or if EBOF fails to do so, EBOF hereby authorizes the Lenders that are Petitioning Creditors to do so on EBOF's behalf), and (b) the Escrow Documents shall be of no further force or effect, and SRZ shall return the Escrow Documents to the respective Parties that delivered such documents to SRZ upon entry of the 2 DRAFT 11/9/2007 Withdrawal Notice on the docket of the Bankruptcy Court, provided that a Dismissal Order has not been previously docketed. If the joint motion to dismiss the Bankruptcy Case is denied, or a Withdrawal Notice is filed before a Dismissal Order (if any) is entered as provided above, in each case, to the fullest extent possible each of the Parties shall be restored to the position it held immediately before the Agreement Date, the Escrow Documents shall be of no further force or effect, and SRZ shall return the Escrow Documents to the respective Parties that delivered such documents to SRZ. 4. TERMINATION OF PURCHASE AND SALE AGREEMENT. If any Purchase and Sale Agreement terminates prior to the Dismissal Date in accordance with section 2(c) thereof, such Purchase and Sale Agreement shall be null, void and of no further force and effect, and SRZ shall return such Purchase and Sale Agreement and the related Release to the parties that delivered such documents to SRZ. 5. DUTIES AND RESPONSIBILITIES OF SRZ. The Parties acknowledge and agree that SRZ (i) shall be obligated only for the performance of such duties as are specifically set forth in this Escrow Agreement; (ii) may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper person, and shall have no responsibility for determining the accuracy thereof. 6. EXCULPATION AND INDEMNIFICATION. SRZ shall not be liable for, and each Party shall jointly and severally indemnify and hold SRZ harmless from and against, any and all losses, liabilities, claims, actions, damages and expenses, including attorneys' fees and disbursements, arising out of or in connection with this Escrow Agreement. This section shall survive termination of this Escrow Agreement. 7. TERMINATION. This Escrow Agreement shall continue in effect until the earlier of the following to occur: (i) all Escrow Documents are released, or (ii) December 21, 2007, unless such date is extended in writing by all Lenders. 8. NOTICES. Any written notice required to be given under this Escrow Agreement shall be sent to the following by mail, electronic mail or facsimile, and shall be deemed given upon such mailing and sending by facsimile: If to SRZ: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: David M. Hillman, Esq. (david.hillman@srz.com) Jeffrey S. Sabin, Esq. (jeffrey.sabin@srz.com) If to EBOF, Dennis McLaughlin, or the Subsidiaries: 3001 Knox Street, Suite 403 Dallas, Texas 75205 Telephone: (214) 389-9800 Facsimile: (214) 389-9805 Attention: Dennis McLaughlin 3 DRAFT 11/9/2007 with a copy to: Akin Gump Strauss Hauer & Feld LLP 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 Telephone: (214) 969-4710 Facsimile: (214) 969-4343 Attention: Charles R. Gibbs, Esq. If to Castlerigg (to the extent a signatory hereto): 40 West 57th Street 26th Floor New York, New York 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu (chacioglu@sandellmgmt.com) Matthew Pliskin (mpliskin@sandellmgmt.com) with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: David M. Hillman, Esq. (david.hillman@srz.com) Jeffrey S. Sabin, Esq. (jeffrey.sabin@srz.com) If to Radcliffe (to the extent a signatory hereto): c/o RG Capital Management, L.P. 3 Bala Plaza - East, Suite 501 Bala Cynwyd, PA 19004 Telephone: (610) 617-5911 Facsimile: (610) 617-0570 Attention: Gerald F. Stahlecker (gstahlecker@radcliffefunds.com) with a copy to: Wilmer Cutler Pickering Hale and Dorr LLP 399 Park Avenue New York, New York 10022 Telephone: (212) 230-8800 4 DRAFT 11/9/2007 Facsimile: (212) 230-8888 Attention: Philip D. Anker, Esq. (Philip.Anker@wilmerhale.com) If to Yorkville (to the extent a signatory hereto): 101 Hudson Street, Suite 3700 Jersey City, New Jersey 07303 Attention: Eric Hansen, Esq. (ehansen@yorkvilleadvisors.com) with a copy to: Baker Botts L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Telephone: (214) 953-6571 Facsimile: (214) 953-6503 Attention: C. Luckey McDowell, Esq. (luckey.mcdowell@bakerbotts.com) If to Cranshire (to the extent a signatory hereto): Greenberg Traurig LLP 77 W. Wacker Dr., Suite 2500 Chicago, Illinois 60601 Telephone: (312) 456-8448 Facsimile: (312) 456-8435 Attention: Todd Mazur, Esq. (mazurt@gtlaw.com) Peter Lieberman (liebermanp@gtlaw.com) If to Evolution (to the extent a signatory hereto): c/o Evolution Capital Management LLC 2425 Olympic Boulevard, Suite 120E Santa Monica, California 90404 Telephone: (310) 315-8866 Attention: Brian S. Yeh (brian.yeh@evofund.com) with a copy to: Cadwalader, Wickersham & Taft LLP One World Financial Center New York, New York 10281 Telephone: (212) 504-6373 Facsimile: (212) 504-6666 Attention: Gregory M. Petrick, Esq. (gregory.petrick@cwt.com) 5 DRAFT 11/9/2007 If to Kings Road (to the extent a signatory hereto): c/o Polygon Investment Partners LP 598 Madison Avenue, 14th Floor New York, New York 10022 Telephone: (212) 359-7300 Facsimile: (212) 359-7303 Attention: Erik M.W. Casperson (ecaspersen@polygoninv.com) Brandon L. Jones (bjones@polygoninv.com) with a copy to: Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Telephone: (213) 485-1234 Facsimile: (213) 891-8763 Attention: Russell Sauer, Esq. (russ.sauer@lw.com) If to CVI (to the extent a signatory hereto): c/o Heights Capital Management 101 California Street, Suite 3250 San Francisco, California 94111 Telephone: (415) 403-6510 Facsimile: (610) 617-3896 Attention: Michael Spolan (Michael.Spolan@sig.com) with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers, LLP 919 Market Street, Suite 1000 Wilmington, Delaware 19801 Telephone: (302) 426-1189 Facsimile: (302) 426-9193 Attention: Richard M. Beck, Esq. (rbeck@klehr.com) If to Portside (to the extent a signatory hereto): c/o Ramius Capital Group, L.L.C. 666 Third Avenue, 26th Floor New York, New York 10017 Telephone: (212) 845-7955 Facsimile: (212) 201-4802 Attention: Jeffrey Smith (jsmith@ramius.com) Peter Feld (pfeld@ramius.com) Owen Littman (olittman@ramius.com) 6 DRAFT 11/9/2007 with a copy to: Hennigan, Bennett & Dorman 601 South Figueroa Street, Suite 3300 Los Angeles, California 90017 Telephone: (213) 694-1012 Facsimile: (213) 694-1234 Attention: Bruce Bennett, Esq. (bennettb@hbdlawyers.com) 9. GOVERNING LAW, JURISDICTION, JURY TRIAL. All questions concerning the construction, validity, enforcement and interpretation of this Escrow Agreement 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 jurisdiction other than the State of New York. The Parties hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Parties hereby irrevocably waive personal service of process and consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such Party at the address for such notices to it under this Escrow Agreement and agree that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS ESCROW AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 10. COUNTERPARTS. This Escrow Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 11. HEADINGS. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Escrow Agreement. 12. RECITALS. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Escrow Agreement and shall be considered prima facie evidence of the facts and documents referred to therein. 13. EFFECTIVE DATE. This Escrow Agreement shall be effective as of the date first mentioned above. 7 DRAFT 11/9/2007 IN WITNESS WHEREOF, the Parties to this Escrow Agreement have caused their respective signature page to this Escrow Agreement to be duly executed as of the date first written above. Earth Biofuels, Inc. Castlerigg Master Investments Ltd. By: Sandell Asset Management Corp. By: By: --------------------------- ------------------------------------ Name: Name: Title: Title: Evolution Master Fund Ltd. SPC, Capital Ventures International Segregated Portfolio M By: Heights Capital Management, Inc. its authorized agent By: By: --------------------------- ------------------------------------ Name: Name: Title: Title: Radcliffe SPC, Ltd. for and on behalf YA Global Investments, L.P. (formerly, of the Class A Convertible Crossover Cornell Capital Partners, LP Segregated Portfolio By: RG Capital Management Company, By: Yorkville Advisors, LLC LLC Its: General Partner By: RGC Management Company, LLC By: By: --------------------------- ------------------------------------ Name: Name: Title: Title: Cranshire Capital, LP Portside Growth and Opportunity Fund By: By: --------------------------- ------------------------------------ Name: Name: Title: Title: Kings Road Investments Ltd. By: --------------------------- Name: Title: 8 DRAFT 11/9/2007 IN WITNESS WHEREOF, the parties to this Escrow Agreement have caused their respective signature page to this Escrow Agreement to be duly executed as of the date first written above. ----------------------------------------- Name ----------------------------------------- Signature ----------------------------------------- Address STATE OF TEXAS ) ) ss. COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, on this day personally appeared DENNIS MCLAUGHLIN, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated. Given under my hand and seal of office, this ____ day of __________, 2007. (Seal) Notary Public, State of Texas (Notary's Name Typed or Printed) My Commission Expires: 9 DRAFT 11/9/2007 IN WITNESS WHEREOF, the parties to this Escrow Agreement have caused their respective signature page to this Escrow Agreement to be duly executed as of the date first written above. Earth LNG, Inc. Earth Biofuels, Technology Co, LLC d/b/a Advanced Biofuels Technology, LLC By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: Applied LNG Technologies, USA, LLC Earth Biofuels Distribution Co. By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: Alternative Dual Fuels, Inc. Earth Biofuels of Cordele, LLC d/b/a Apollo Leasing, Inc. By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: Arizona LNG, LLC B20 Customs LLC By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: Fleet Star, Inc. Earth Biofuels Operating, Inc. By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: Durant Biofuels, LLC Earth Biofuels Retail Fuels, Co. By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: 10 DRAFT 11/9/2007 Earth Ethanol of Washington LLC Earth Ethanol, Inc. By: By: --------------------------------- ---------------------------------- Name: Name: Title: Title: 11 DRAFT 11/9/2007 IN WITNESS WHEREOF, the Parties to this Escrow Agreement have caused their respective signature page to this Escrow Agreement to be duly executed as of the date first written above. SCHULTE ROTH & ZABEL LLP in its capacity as escrow agent -------------------------------- By: Title: 12 DRAFT 11/9/2007 SCHEDULE A SCHEDULE OF EBOF SUBSIDIARIES SUBSIDIARY ----------------------------------- Earth LNG, Inc. Applied LNG Technologies, USA, LLC Alternative Dual Fuels, Inc. d/b/a Apollo Leasing, Inc. Arizona LNG, LLC Fleet Star, Inc. Durant Biofuels, LLC Earth Biofuels, Technology Co, LLC d/b/a Advanced Biofuels Technology, LLC Earth Biofuels Distribution Co Earth Biofuels of Cordele, LLC B20 Customs LLC Earth Biofuels Operating, Inc. Earth Biofuels Retail Fuels, Co. Earth Ethanol, Inc. Earth Ethanol of Washington LLC 13 EX-99 7 exhibit_23.txt EXHIBIT 23 - CAPITAL VENTURES INTERNATIONAL SPA DRAFT 11/12/2007 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made on November __, 2007 between Capital Ventures International ("SELLER") and Castlerigg Master Investments Ltd. ("BUYER"). WHEREAS, pursuant to the Securities Purchase Agreement (the "BRIDGE AGREEMENT"), dated as of June 7, 2006, by and among Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and the investors listed on the Schedule of Buyers attached thereto (individually, a "BRIDGE BUYER" and collectively, the "BRIDGE BUYERS"), Seller (as a Bridge Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Bridge Agreement, among other things, a warrant, in substantially the form attached to the Bridge Agreement as EXHIBIT B (the "BRIDGE WARRANT"), to acquire up to 375,000 shares of Common Stock (the "BRIDGE WARRANT SHARES"). WHEREAS, Borrower agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Bridge Registration Rights Agreement (as defined below)), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws pursuant to the Registration Rights Agreement, dated as of June 7, 2006, by and among the Borrower and the Bridge Buyers (the "BRIDGE REGISTRATION RIGHTS AGREEMENT"). WHEREAS, pursuant to the Securities Purchase Agreement (the "ORIGINAL SECURITIES PURCHASE AGREEMENT", and together with the Bridge Agreement, the "SECURITIES PURCHASE AGREEMENTS"), dated as of July 24, 2006, by and among the Borrower and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), Seller (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Original Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of Eight Million Dollars ($8,000,000) (the "NOTE"), in substantially the form attached to the Original Securities Purchase Agreement as EXHIBIT A, (ii) a warrant, in substantially the form attached to the Original Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 1,379,310 shares of Common Stock (the "SERIES A WARRANT Shares") and (iii) a warrant, in substantially the form attached to the Original Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant and the Bridge Warrant, the "WARRANTS") to acquire up to 1,379,310 shares of Common Stock (the "SERIES B WARRANT Shares," and together with the Original Bridge Warrant Shares and the Series A Warrant Shares, the "WARRANT SHARES"). WHEREAS, Borrower agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Original Registration Rights Agreement (as defined below)), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws pursuant to the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "ORIGINAL REGISTRATION RIGHTS AGREEMENT," and together with the Bridge Registration Rights Agreement, the "REGISTRATION RIGHTS AGREEMENTS"). WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller the Note and the Warrants on the basis of the representations, warranties and agreements contained in this Agreement, and upon the terms but subject to the conditions set forth herein. WHEREAS, Seller desires to assign to Buyer and Buyer desires to assume from Seller, its rights as a holder of the Note and the Warrants under (a) the Securities Purchase Agreements and (b) the Registration Rights Agreements, as applicable. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 . PURCHASE OF NOTE AND WARRANTS (a) PURCHASE AND SALE. Seller hereby agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Note and the Warrants. The aggregate purchase price for the Note and the Warrants shall be the greater of (i) $2,000,000 and (ii) the amount paid by Buyer or any of its affiliates on, before or within one hundred eighty (180) days after the Closing Date to holders of similar Notes to acquire such Notes, expressed as a percentage of the principal amount of such Notes, multiplied by the principal amount of Seller's Note (the "PURCHASE PRICE"). If by application of the immediately preceding clause (a)(ii), Buyer is required to pay to Seller an amount greater than the amount actually paid by Buyer on the Closing Date to Seller for the Note and the Warrants, then Buyer shall promptly pay such greater amount to Seller. (b) CLOSING. Closing on this Agreement shall be conducted no later than the second business day after the satisfaction (or waiver) of the conditions to the closing set forth in Section 2 (the "CLOSING DATE") at 10:00 a.m., New York City time, (or such other time as the parties may agree) at the office of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (c) FORM OF PAYMENT. On the Closing Date, Buyer shall pay the Purchase Price to Seller for the Note and the Warrants by wire transfer of immediately available funds in accordance with Seller's written wire instructions. SECTION 2 . CLOSING CONDITIONS. (a) BUYER CLOSING CONDITIONS. The obligation of Buyer to pay for the Note and the Warrants as provided herein on the Closing Date is subject to the following conditions (the "BUYER CLOSING Conditions"), PROVIDED that these conditions are for Buyer's sole benefit and may be waived by Buyer at any time in its sole discretion by providing Seller with prior written consent thereof. -2- (i) On the Closing Date, Seller shall have delivered to Buyer certificates representing the Note and the Warrants (in such denominations and registered in such names as Buyer shall request). (ii) The representations and warranties of Seller shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Seller shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller at or prior to the Closing Date. (iii) Buyer shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. (iv) Buyer shall have received the Interim Restructuring Agreement duly executed by the Borrower in favor of each of the holders of the Notes, substantially in the form attached hereto as EXHIBIT B. (v) Buyer shall have received the Mutual Release attached hereto as EXHIBIT C (the "RELEASE") executed by Seller in favor of Borrower. (vi) An order of the United States Bankruptcy Court for the District of Delaware shall have been entered on the docket and shall have become final and non-appealable dismissing the case under the Bankruptcy Code pending before the Bankruptcy Court in which Borrower is a debtor, In re Earth Biofuels, Inc., No. 07-10928 (CSS). (b) SELLER CLOSING CONDITIONS. The obligation of Seller to sell the Note and the Warrants as provided herein on the Closing Date is subject to the following conditions (the "SELLER CLOSING CONDITIONS") , PROVIDED that these conditions are for Seller's sole benefit and may be waived by Seller at any time in its sole discretion by providing Buyer with prior written consent thereof. (i) The representations and warranties of Buyer shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Buyer at or prior to the Closing Date. -3- (ii) Seller shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. (iii) Seller shall have received the Release executed by the Borrower in favor of the Seller. (iv) Buyer shall have delivered to Seller the Purchase Price for the Note and the related Warrants being purchased by Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by Seller. (c) TERMINATION. In the event that any of the Buyer Closing Conditions or the Seller Closing Conditions are not satisfied by December 21, 2007, either party to this Agreement may terminate this Agreement immediately upon notice to the other party, at which time each party's obligations under this Agreement and the Release shall terminate and be null, void and of no further force and effect. In the event of a termination, all original documents transmitted to any party or otherwise held in escrow shall be returned to the executing party. SECTION 3 . SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby represents, warrants and covenants to Buyer as follows as of the date hereof: (a) This Agreement has been duly authorized, executed and delivered by Seller and constitutes a valid and legally binding agreement of Seller enforceable against Seller in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (b) All government and other consents that are required to have been obtained by Seller with respect to this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with. (c) Seller has good and valid title to the Note and the Warrants free and clear of any lien, mortgage, security interest, pledge, charge or encumbrance of any kind ("LIENS"). Delivery of the Note and the Warrants to Buyer will pass to Buyer good and valid title to the Note and the Warrants, free and clear of any Liens. (d) The execution and delivery by Seller of this Agreement, the purchase by Seller of the Note and the Warrants and the performance by Seller of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Seller, any order or judgment of any court or other agency of government applicable to Seller or any of Seller's assets or any material contractual restriction binding on or affecting Seller or any of Seller's assets. (e) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Seller, threatened against Seller which could reasonably be expected in any -4- manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (f) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated thereby. (g) Seller is acting solely for Seller's own account, and has made Seller's own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for Seller based upon Seller's own judgment and upon advice of such advisors as Seller deems necessary. Seller acknowledges and agrees that Seller is not relying, and has not relied, upon any communication (written or oral) of Buyer or any affiliate, employee or agent of Buyer with respect to the legal, accounting, tax or other implications of this Agreement and that Seller has conducted Seller's own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Agreement shall not be considered investment advice or a recommendation to enter into this Agreement. Seller acknowledges that neither Buyer nor any affiliate, employee or agent of Buyer is acting as a fiduciary for or an advisor to Seller in respect of this Agreement. (h) Seller has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (i) Seller is not selling the Note and the Warrants as a result of any advertisement, article, notice or other communication regarding the Note and the Warrants published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (j) Neither the Seller nor any affiliate of the Seller (i) has any relationship with the Company or any of its subsidiaries other than its ownership of the Securities and other warrants of the Company issued to the Seller on May 26, 2006 and July 26, 2006; (ii) directly or indirectly controls the Company or any of its subsidiaries; or (iii) is a director or officer of the Company or any of its subsidiaries. (k) Seller acknowledges that (i) Buyer currently may have, and later may come into possession of, information with respect to Borrower that is not known to Seller and that may be material to a decision to sell the Note and the Warrants for the Purchase Price ("SELLER EXCLUDED INFORMATION"), (ii) Seller has determined to sell the Note and the Warrants notwithstanding its lack of knowledge of Seller Excluded Information, if any, and (iii) Buyer shall have no liability to Seller, and Seller waives and releases any claims that it might have against Buyer, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Seller Excluded Information, if any, in connection with Seller's sale of the Note and the Warrants for the Purchase Price in accordance herewith; provided, however, that Seller Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Buyer in this Agreement and, provided further, that all written material concerning the Borrower that was provided by Buyer to Seller from the date the offer to purchase Seller's Note and -5- Warrants was made by Buyer to Seller through and including the Closing Date was delivered to Seller in the same form that Buyer received it from the Borrower. SECTION 4 . BUYER REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and warrants to Seller as follows: (a) Buyer understands that, except as provided in the Registration Rights Agreements, the Note and the Warrants have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless subsequently registered thereunder or an exemption from such registration is available. (b) Buyer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Buyer and shall constitute the legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (c) The execution and delivery by Buyer of this Agreement, the purchase by Buyer of the Note and the Warrants and the performance by Buyer of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Buyer, any order or judgment of any court or other agency of government applicable to Buyer or any of Buyer's assets or any material contractual restriction binding on or affecting Buyer or any of Buyer's assets. (d) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Buyer, threatened against Buyer which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (e) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated thereby. (f) Buyer (i) is a sophisticated person with respect to the sale of the Notes and the Warrants; (ii) has adequate information concerning the business and financial condition of the Borrower to make an informed decision regarding the purchase of the Note and the Warrants; and (iii) has independently and without reliance upon Seller, and based on such information as Buyer has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Buyer has relied upon Seller's express representations, warranties and covenants in this Agreement. Buyer acknowledges that Seller has not given Buyer any investment advice, credit information or opinion on whether the purchase of the Note and the Warrants is prudent. -6- (g) Buyer is purchasing the Note and the Warrants solely for its own account and not with a view to the distribution or resale of the Note and the Warrants or its rights thereunder except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act. (h) Buyer is an "accredited investor" (as defined in Regulation D under the Securities Act) and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the transaction contemplated herein, and it is able to bear the economic risk of such purchase. (i) Buyer understands that the Note and the Warrants are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws. (j) Buyer understands that the Bridge Warrants shall bear the legends set forth in Section 2.7 of the Bridge Securities Purchase Agreement and such legends shall not be removed except in accordance with Sections 2.7 of the Bridge Securities Purchase Agreement. (k) Buyer understands that the Note, the Series A Warrant and the Series B Warrant shall bear the legends set forth in Section 2(g) of the Original Securities Purchase Agreement and such legends shall not be removed except in accordance with Sections 2(g) of the Original Securities Purchase Agreement. (l) Buyer is not purchasing the Note and the Warrants as a result of any advertisement, article, notice or other communication regarding the Note and the Warrants published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (m) Buyer has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (n) Buyer has not, and to its knowledge no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Borrower. (o) Buyer acknowledges that (i) Seller currently may have, and later may come into possession of, information with respect to Borrower that is not known to Buyer and that may be material to a decision to purchase the Note and the Warrants for the Purchase Price ("BUYER EXCLUDED INFORMATION"), (ii) Buyer has determined to purchase the Note and the Warrants notwithstanding its lack of knowledge of Buyer Excluded Information, if any, and (iii) Seller shall have no liability to Buyer, and Buyer waives and releases any claims that it might have against Seller, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Buyer Excluded Information, if any, in connection with Buyer's purchase of the Note and the Warrants for the Purchase Price in accordance herewith; provided, however, that -7- Buyer Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Seller in this Agreement. SECTION 5 . PAYMENT OF EXPENSES. Each party hereto shall be liable for its own costs and expenses in connection with the transactions contemplated hereby. SECTION 6 . COVENANTS. (a) Seller, for good and valuable consideration, effective as of the Closing Date, hereby assigns, transfers, conveys and delivers to Buyer all of its right, title and interest in and to the Note and the Warrants, and with respect to such Note and the Warrants, to the Securities Purchase Agreements and the Registration Rights Agreements, as applicable. (b) Buyer, for good and valuable consideration, effective as of the Closing Date, hereby agrees to be bound by the terms of the Securities Purchase Agreements and the Registration Rights Agreements with respect to the Note and the Warrants, as applicable. In addition, Buyer shall execute and deliver to Seller and the Borrower the Notice and Acknowledgment agreeing to be bound by all of the provisions contained therein. SECTION 7 . NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to Buyer: Castlerigg Master Investments Ltd. c/o Sandell Asset Management 40 West 57th Street 26th Floor New York, NY 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu Matthew Pliskin with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: Eleazer N. Klein, Esq. -8- If to Seller: Capital Ventures International c/o Heights Capital Management 101 California Street, Suite 3250 San Francisco, CA 94111 Facsimile: (415) 403-6525 Telephone: (415) 403-6500 Attention: Martin Kobinger, Investment Manager With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers, LLP 919 Market Street Suite 1000 Wilmington, DE 19801 Telepohone: (302)-552-5501 Facsimile: (302)-426-9193 Attention: Richard M. Beck, Esq. Any party hereto may change the address for receipt of communications by giving written notice to the others. SECTION 8 . GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. SECTION 9 . ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements among Buyer, Seller, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein -9- and therein and, except as specifically set forth herein or therein, neither Seller nor Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. SECTION 10 . SEVERABILITY. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). SECTION 11 . NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. SECTION 12 FURTHER ASSURANCES. Each party shall use its reasonable best efforts to do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 13 CONFIDENTIALITY. Each party agrees that, except as otherwise compelled by law, court order or by a competent regulator, it will not issue any reports, statements or releases, in each case relating to this Agreement or the transactions contemplated hereby, without the prior written consent of the other party hereto. Notwithstanding anything to the contrary set forth herein, any party and each representative of such party may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement, and all materials of any kind (including opinions or other tax analyses) related to such tax treatment and tax structure. SECTION 14 SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Note and the Warrants. [The remainder of the page is intentionally left blank] -10- IN WITNESS WHEREOF, Buyer and Seller have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. CAPITAL VENTURES INTERNATIONAL By: -------------------------------- Name: Title: CASTLERIGG MASTER INVESTEMENTS LTD. By: -------------------------------- Name: Title: EXHIBIT A NOTICE AND ACKNOWLEDGEMENT AND JOINDER AGREEMENT This Notice and Acknowledgement and Joinder Agreement (the "NOTICE AND Acknowledgement") dated as of November __, 2007 between Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (THE "BORROWER") and Castlerigg Master Investments Ltd. (the "ASSIGNEE"). Reference is made to (a) the Securities Purchase Agreement (the "BRIDGE AGREEMENT"), dated as of June 7, 2006, by and among the Borrower and the investors listed on the Schedule of Buyers attached thereto (individually, a "BRIDGE BUYER" and collectively, the "BRIDGE BUYERS"), whereby Capital Ventures International (the "ASSIGNOR")(as a Bridge Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Bridge Agreement, among other things, a warrant, in substantially the form attached to the Bridge Agreement as EXHIBIT B (the "BRIDGE WARRANT"), to acquire up to 375,000 shares of Common Stock (the "BRIDGE WARRANT SHARES"); (b) the Securities Purchase Agreement (the "ORIGINAL SECURITIES PURCHASE AGREEMENT", and together with the Bridge Agreement, the "SECURITIES PURCHASE AGREEMENTS"), dated as of July 24, 2006, by and among the Borrower and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), whereby the Assignor (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Original Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of Eight Million Dollars ($8,000,00) (the "NOTE"), (ii) a warrant, in substantially the form attached to the Original Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 1,379,310 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iv) a warrant, in substantially the form attached to the Original Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant and the Bridge Warrant, the "WARRANTS") to acquire up to 1,379,310 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Bridge Warrant Shares and the Series A Warrant Shares, the "WARRANT SHARES"), (c) the Registration Rights Agreement, dated as of June 7, 2006, by and among the Borrower and the Bridge Buyers (the "BRIDGE REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Borrower has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Bridge Registration Rights Agreement), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws, (d) the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "ORIGINAL REGISTRATION RIGHTS AGREEMENT," and together with the Bridge Registration Rights Agreement, the "REGISTRATION RIGHTS AGREEMENTS"), pursuant to which the Borrower has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Original Registration Rights Agreement), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws, and (c) the Securities Purchase Agreement (the "ASSIGNMENT AGREEMENT"), dated as of November __, 2007, by and between the Assignor and the Assignee, whereby the Assignor (i) sold to the Assignee the Note and the Warrants, and (ii) assigned to Assignee its rights as a holder of the Note and the Warrants pursuant to (x) the Securities Purchase Agreements and (y) the Registration Rights Agreements (collectively, the "SALE AND ASSIGNMENT"). The Borrower and the Assignee hereby agree as follows: 1. The Borrower hereby acknowledges that it has received notice of the Sale and Assignment in accordance with the Assignment Agreement as of the date first above written. 2. The Assignee (i) agrees that it will perform in accordance with their terms all of the agreements and obligations which by the terms of the Securities Purchase Agreements and the Registration Rights Agreements are required to be performed by it as a "Buyer" (in each case as defined thereunder) and, as of the Effective Date, the terms of the Securities Purchase Agreements and the Registration Rights Agreements shall be the binding obligations of the Assignee; (ii) represents and warrants that the representations and warranties of the "Buyer" contained in each of the Securities Purchase Agreements are true and correct as if made by the Assignee on the date hereof; and (iii) agrees that it shall execute and deliver such additional documents assuming the obligations of the Assignor and perform all tasks reasonably requested by the Borrower to effect the assignment contemplated hereby. 3. This agreement shall become effective on such date (the "EFFECTIVE DATE") as the Borrower, the Assignee and the Assignor have executed and delivered this Notice and Acknowledgement. 4. The Borrower and the Assignee agree that as of the Effective Date the Assignee shall be a party to the Securities Purchase Agreements and the Registration Rights Agreements and, to the extent provided in this Notice and Acknowledgement, have the rights and obligations under the Securities Purchase Agreements and the Registration Rights Agreements of the Assignor with respect to the Note and the Warrants. 5. Each of the parties represents and warrants that it is duly authorized to enter into this Notice and Acknowledgement. This Notice and Acknowledgement shall be binding on each party's successors and permitted assigns. This Notice and Acknowledgement is personal to the parties and may not be assigned or transferred by any party without the prior written consent of the other parties. 6. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. [The remainder of the page is intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Notice and Acknowledgement to be executed by their respective officers thereunto duly authorized, as of the date first above written. EARTH BIOFUELS, INC. By: ------------------------------------- Name: Title CASTLERIGG MASTER INVESTMENTS LTD. By: ------------------------------------- Name: Title Agreed and accepted, this ___ day of November, 2007 CAPITAL VENTURES INTERNATIONAL By: ------------------------------------- Name: Title EX-99 8 exhibit_24.txt EXHIBIT 24 - EVOLUTION MASTER FUND LTD. SPA Draft 11/12/2007 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made on November __, 2007 between Evolution Master Fund Ltd. SPC, Segregated Portfolio M ("SELLER") and Castlerigg Master Investments Ltd. ("BUYER"). WHEREAS, pursuant to the Securities Purchase Agreement (the " SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), Seller (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of Eleven Million, Five Hundred Thousand Dollars ($11,500,000) (the "NOTE"), in substantially the form attached to the Securities Purchase Agreement as EXHIBIT A, (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 1,982,759 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Original Series A Warrant, the "WARRANTS") to acquire up to 1,982,759 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Original Bridge Warrant Shares and the Original Series A Warrant Shares, the "WARRANT SHARES"). WHEREAS, Borrower agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement (as defined below)), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws pursuant to the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"). WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller the Note and the Warrants on the basis of the representations, warranties and agreements contained in this Agreement, and upon the terms but subject to the conditions set forth herein. WHEREAS, Seller desires to assign to Buyer and Buyer desires to assume from Seller, its rights as a holder of the Note and the Warrants under (a) the Securities Purchase Agreement and (b) the Registration Rights Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 . PURCHASE OF NOTE AND WARRANTS (a) PURCHASE AND SALE. Seller hereby agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Note and the Warrants. The aggregate purchase price for the Note and the Warrants shall be the greater of $2,875,000 or (ii) the amount paid by Buyer or any of its affiliates on, before or within one hundred eighty (180) days after the Closing Date to holders of similar Notes to acquire such Notes, expressed as a percentage of the principal amount of such Notes, multiplied by the principal amount of Seller's Note (the "PURCHASE PRICE"). If by application of the immediately preceding clause (a)(ii), Buyer is required to pay to Seller an amount greater than the amount actually paid by Buyer on the Closing Date to Seller for the Note and the Warrants, then Buyer shall promptly pay such greater amount to Seller. (b) CLOSING. Closing on this Agreement shall be conducted no later than the second business day after satisfaction (or waiver) of the conditions to the closing set forth in Section 2 (the "CLOSING DATE") at 10:00 a.m., New York City time, (or such other time as the parties may agree) at the office of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (c) FORM OF PAYMENT. On the Closing Date, Buyer shall pay the Purchase Price to Seller for the Note and the Warrants by wire transfer of immediately available funds in accordance with Seller's written wire instructions. SECTION 2 . CLOSING CONDITIONS. (a) BUYER CLOSING CONDITIONS. The obligation of Buyer to pay for the Note and the Warrants as provided herein on the Closing Date is subject to the following conditions (the "BUYER CLOSING CONDITIONS"), PROVIDED that these conditions are for Buyer's sole benefit and may be waived by Buyer at any time in its sole discretion by providing Seller with prior written consent thereof. (i) On the Closing Date, Seller shall have delivered to Buyer certificates representing the Note and the Warrants (in such denominations and registered in such names as Buyer shall request). (ii) The representations and warranties of Seller shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Seller shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller at or prior to the Closing Date. (iii) Buyer shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. -2- (iv) Buyer shall have received the Interim Restructuring Agreement duly executed by the Borrower in favor of each of the holders of the Notes, substantially in the form attached hereto as EXHIBIT B. (v) Buyer shall have received the Mutual Release attached as EXHIBIT C (the "RELEASE") hereto duly executed by Seller in favor of Borrower. (vi) An order of the United States Bankruptcy Court for the District of Delaware shall have been entered on the docket and shall have become final and non-appealable dismissing the case under the Bankruptcy Code pending before the Bankruptcy Court in which Borrower is a debtor, In re Earth Biofuels, Inc., No. 07-10928 (CSS). (b) SELLER CLOSING CONDITIONS. The obligation of Seller to sell the Note and the Warrants as provided herein on the Closing Date is subject to the following conditions (the "SELLER CLOSING CONDITIONS"), PROVIDED that these conditions are for Seller's sole benefit and may be waived by Seller at any time in its sole discretion by providing Buyer with prior written consent thereof. (i) The representations and warranties of Buyer shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Buyer at or prior to the Closing Date. (ii) Seller shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. (iii) Seller shall have received the Release executed by the Borrower in favor of the Seller. (iv) Buyer shall have delivered to Seller the Purchase Price for the Note and the related Warrants being purchased by Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by Seller. (c) TERMINATION. In the event that any of the Buyer Closing Conditions or the Seller Closing Conditions are not satisfied by December 21, 2007, either party to this Agreement may terminate this Agreement immediately upon notice to the other party, at which time each party's obligations under this Agreement and the Release shall terminate and be null, void and of no further force and effect. In the event of a termination, all original documents transmitted to any party or otherwise held in escrow shall be returned to the executing party. -3- SECTION 3 . SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby represents, warrants and covenants to Buyer as follows as of the date hereof: (a) This Agreement has been duly authorized, executed and delivered by Seller and constitutes a valid and legally binding agreement of Seller enforceable against Seller in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (b) All government and other consents that are required to have been obtained by Seller with respect to this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with. (c) Seller has good and valid title to the Note and the Warrants free and clear of any lien, mortgage, security interest, pledge, charge or encumbrance of any kind ("LIENS"). Delivery of the Note and the Warrants to Buyer will pass to Buyer good and valid title to the Note and the Warrants, free and clear of any Liens. (d) The execution and delivery by Seller of this Agreement, the purchase by Seller of the Note and the Warrants and the performance by Seller of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Seller, any order or judgment of any court or other agency of government applicable to Seller or any of Seller's assets or any material contractual restriction binding on or affecting Seller or any of Seller's assets. (e) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Seller, threatened against Seller which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (f) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated thereby. (g) Seller is acting solely for Seller's own account, and has made Seller's own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for Seller based upon Seller's own judgment and upon advice of such advisors as Seller deems necessary. Seller acknowledges and agrees that Seller is not relying, and has not relied, upon any communication (written or oral) of Buyer or any affiliate, employee or agent of Buyer with respect to the legal, accounting, tax or other implications of this Agreement and that Seller has conducted Seller's own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Agreement shall not be considered investment advice or a recommendation to enter into this Agreement. Seller acknowledges that neither Buyer nor -4- any affiliate, employee or agent of Buyer is acting as a fiduciary for or an advisor to Seller in respect of this Agreement. (h) Seller has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (i) Seller is not selling the Note and the Warrants as a result of any advertisement, article, notice or other communication regarding the Note and the Warrants published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (j) Neither the Seller nor any affiliate of the Seller (i) has any relationship with the Company or any of its subsidiaries other than its ownership of the Securities and other warrants of the Company issued to the Seller on May 26, 2006 and July 26, 2006; (ii) directly or indirectly controls the Company or any of its subsidiaries; or (iii) is a director or officer of the Company or any of its subsidiaries. (k) Seller acknowledges that (i) Buyer currently may have, and later may come into possession of, information with respect to Borrower that is not known to Seller and that may be material to a decision to sell the Note and the Warrants for the Purchase Price ("SELLER EXCLUDED INFORMATION"), (ii) Seller has determined to sell the Note and the Warrants notwithstanding its lack of knowledge of Seller Excluded Information, if any, and (iii) Buyer shall have no liability to Seller, and Seller waives and releases any claims that it might have against Buyer, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Seller Excluded Information, if any, in connection with Seller's sale of the Note and the Warrants for the Purchase Price in accordance herewith; provided, however, that Seller Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Buyer in this Agreement and provided further, that all written material concerning the Borrower that was provided by Buyer to Seller from the date the offer to purchase Seller's Note and Warrants was made by Buyer to Seller through and including the Closing Date was delivered to Seller in the same form that Buyer received it from the Borrower.. SECTION 4 . BUYER REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and warrants to Seller as follows: (a) Buyer understands that, except as provided in the Registration Rights Agreement, the Note and the Warrants have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless subsequently registered thereunder or an exemption from such registration is available. (b) Buyer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Buyer and shall constitute the legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any -5- other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (c) The execution and delivery by Buyer of this Agreement, the purchase by Buyer of the Note and the Warrants and the performance by Buyer of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Buyer, any order or judgment of any court or other agency of government applicable to Buyer or any of Buyer's assets or any material contractual restriction binding on or affecting Buyer or any of Buyer's assets. (d) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Buyer, threatened against Buyer which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (e) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated thereby. (f) Buyer (i) is a sophisticated person with respect to the purchase of the Notes and the Warrants; (ii) has adequate information concerning the business and financial condition of the Borrower to make an informed decision regarding the purchase of the Note and the Warrants; and (iii) has independently and without reliance upon Seller, and based on such information as Buyer has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Buyer has relied upon Seller's express representations, warranties and covenants in this Agreement. Buyer acknowledges that Seller has not given Buyer any investment advice, credit information or opinion on whether the purchase of the Note and the Warrants is prudent. (g) Buyer is purchasing the Note and the Warrants solely for its own account and not with a view to the distribution or resale of the Note and the Warrants or its rights thereunder except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act. (h) Buyer is an "accredited investor" (as defined in Regulation D under the Securities Act) and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the transaction contemplated herein, and it is able to bear the economic risk of such purchase. (i) Buyer understands that the Note and the Warrants are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws. (j) Buyer understands that the Note, the Series A Warrant and the Series B Warrant shall bear the legends set forth in Section 2(g) of the Securities -6- Purchase Agreement and such legends shall not be removed except in accordance with Sections 2(g) of the Securities Purchase Agreement. (k) Buyer is not purchasing the Note and the Warrants as a result of any advertisement, article, notice or other communication regarding the Note and the Warrants published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (l) Buyer has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (m) Buyer has not, and to its knowledge no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Borrower. (n) Buyer acknowledges that (i) Seller currently may have, and later may come into possession of, information with respect to Borrower that is not known to Buyer and that may be material to a decision to purchase the Note and the Warrants for the Purchase Price ("BUYER EXCLUDED INFORMATION"), (ii) Buyer has determined to purchase the Note and the Warrants notwithstanding its lack of knowledge of Buyer Excluded Information, if any, and (iii) Seller shall have no liability to Buyer, and Buyer waives and releases any claims that it might have against Seller, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Buyer Excluded Information, if any, in connection with Buyer's purchase of the Note and the Warrants for the Purchase Price in accordance herewith; provided, however, that Buyer Excluded Information, if any, shall not and does affect the truth or accuracy of the representations or warranties of Seller in this Agreement SECTION 5 . PAYMENT OF EXPENSES. Each party hereto shall be liable for its own costs and expenses in connection with the transactions contemplated hereby. SECTION 6 . COVENANTS. (a) Seller, for good and valuable consideration, effective as of the Closing Date, hereby assigns, transfers, conveys and delivers to Buyer all of its right, title and interest in and to the Note and the Warrants, and with respect to such Note and the Warrants, to the Securities Purchase Agreement and the Registration Rights Agreement. (b) Buyer, for good and valuable consideration, effective as of the Closing Date, hereby agrees to be bound by the terms of the Securities Purchase Agreement and the Registration Rights Agreement with respect to the Note and the Warrants. In addition, Buyer shall execute and deliver to Seller and the Borrower the Notice and Acknowledgment agreeing to be bound by all of the provisions contained therein. SECTION 7 . NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: -7- If to Buyer: Castlerigg Master Investments Ltd. c/o Sandell Asset Management 40 West 57th Street 26th Floor New York, NY 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu Matthew Pliskin with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: Eleazer N. Klein, Esq. If to Seller: Evolution Master Fund Ltd. SPC, Segregated Portfolio M c/o Evolution Capital Management, LLC 2425 Olympic Blvd. Suite 120E Santa Monica, CA 90404 Telephone: (310) 315-8861 Facsimile: (310) 315-8881 Attention: Richard Chisholm General Counsel and Chief Compliance Officer Any party hereto may change the address for receipt of communications by giving written notice to the others. SECTION 8 . GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN -8- INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. SECTION 9 . ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements among Buyer, Seller, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Seller nor Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. SECTION 10 . SEVERABILITY. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). SECTION 11 . NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. SECTION 12 FURTHER ASSURANCES. Each party shall use its reasonable best efforts to do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 13 CONFIDENTIALITY. Each party agrees that, except as otherwise compelled by law, court order or by a competent regulator, it will not issue any reports, statements or releases, in each case relating to this Agreement or the transactions contemplated hereby, without the prior -9- written consent of the other party hereto. Notwithstanding anything to the contrary set forth herein, any party and each representative of such party may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement, and all materials of any kind (including opinions or other tax analyses) related to such tax treatment and tax structure. SECTION 14 SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Note and the Warrants. [The remainder of the page is intentionally left blank] -10- IN WITNESS WHEREOF, Buyer and Seller have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. EVOLUTION MASTER FUND LTD. SPC, SEGREGATED PORTFOLIO M By: -------------------------------------------- Name: Title: CASTLERIGG MASTER INVESTEMENTS LTD. By: -------------------------------------------- Name: Title: EXHIBIT A NOTICE AND ACKNOWLEDGEMENT AND JOINDER AGREEMENT This Notice and Acknowledgement and Joinder Agreement (the "NOTICE AND ACKNOWLEDGEMENT") dated as of November __, 2007 between Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and Castlerigg Master Investments Ltd. (the "ASSIGNEE"). Reference is made to (a) the Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among the Borrower and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), whereby the Assignor (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of Eleven Million, Five Hundred Thousand Dollars ($11,500,000) (the "NOTE"), (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 1,982,759 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant, the "WARRANTS") to acquire up to 1,982,759 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Series A Warrant Shares, the "WARRANT Shares"), (b) the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Borrower has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws, and (c) the Securities Purchase Agreement (the "ASSIGNMENT AGREEMENT"), dated as of November __, 2007, by and between the Assignor and the Assignee, whereby the Assignor (i) sold to the Assignee the Note and the Warrants, and (ii) assigned to Assignee its rights as a holder of the Note and the Warrants pursuant to (x) the Securities Purchase Agreement and (y) the Registration Rights Agreement (collectively, the "SALE AND ASSIGNMENT"). The Borrower and the Assignee hereby agree as follows: 1. The Borrower hereby acknowledges that it has received notice of the Sale and Assignment in accordance with the Assignment Agreement as of the date first above written. 2. The Assignee (i) agrees that it will perform in accordance with their terms all of the agreements and obligations which by the terms of the Securities Purchase Agreement and the Registration Rights Agreement are required to be performed by it as a "Buyer" and, as of the Effective Date, the terms of the Securities Purchase Agreement and the Registration Rights Agreement shall be the binding obligations of the Assignee; (ii) represents and warrants that the representations and warranties of the "Buyer" contained in the Securities Purchase Agreement are true and correct as if made by the Assignee on the date hereof; and (iii) agrees that it shall execute and deliver such additional documents assuming the obligations of the Assignor and perform all tasks reasonably requested by the Borrower to effect the assignment contemplated hereby. 3. This agreement shall become effective on such date (the "EFFECTIVE DATE") as the Borrower, the Assignee and the Assignor have executed and delivered this Notice and Acknowledgement. 4. The Borrower and the Assignee agree that as of the Effective Date the Assignee shall be a party to the Securities Purchase Agreement and the Registration Rights Agreement and, to the extent provided in this Notice and Acknowledgement, have the rights and obligations under the Securities Purchase Agreement and the Registration Rights Agreement of the Assignor with respect to the Note and the Warrants. 5. Each of the parties represents and warrants that it is duly authorized to enter into this Notice and Acknowledgement. This Notice and Acknowledgement shall be binding on each party's successors and permitted assigns. This Notice and Acknowledgement is personal to the parties and may not be assigned or transferred by any party without the prior written consent of the other parties. 6. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. [The remainder of the page is intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Notice and Acknowledgement to be executed by their respective officers thereunto duly authorized, as of the date first above written. EARTH BIOFUELS, INC. By: --------------------------------------- Name: Title CASTLERIGG MASTER INVESTMENTS LTD. By: --------------------------------------- Name: Title Agreed and accepted, this ___ day of November, 2007 EVOLUTION MASTER FUND LTD. SPC, SEGREGATED PORTFOLIO M By: --------------------------------------- Name: Title EX-99 9 exhibit_25.txt EXHIBIT 25 - KINGS ROAD INVESTMENTS LTD. SPA Draft 11/12/2007 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made on November __, 2007 between Kings Road Investments Ltd. ("SELLER") and Castlerigg Master Investments Ltd. ("BUYER"). WHEREAS, pursuant to the Securities Purchase Agreement (the " SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), Seller (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of Ten Million Dollars ($10,000,000) (the "NOTE"), in substantially the form attached to the Securities Purchase Agreement as EXHIBIT A, (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 1,724,138 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Original Series A Warrant, the "WARRANTS") to acquire up to 1,724,138 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Series A Warrant Shares, the "WARRANT SHARES"). WHEREAS, Borrower agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement (as defined below)), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws pursuant to the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"). WHEREAS, on or about August 30, 2006, Seller delivered an Event of Default Redemption Notice to Borrower identifying various Events of Default under its Note and demanding that Borrower redeem its interest in its Note at the Event of Default Redemption Price. In connection therewith, Seller delivered the Note to Borrower and, to the best of Seller's knowledge without duty of inquiry, Borrower remains in possession of the Note. WHEREAS, after Borrower failed to respond or to remit the Event of Default Redemption Price, on September 29, 2006, Seller filed a civil action in the United States District Court for the Southern District of New York in the matter entitled Kings Road Investments, Ltd. v. Earth Biofuels, Inc.<184> Case No. 06 CV 7840 (the "Civil Action") alleging claims for breach of contract and defaults on its Note. WHEREAS, effective December 1, 2006, Seller and Borrower entered into an "INTERIM RESOLUTION AGREEMENT" pursuant to which Seller agreed to dismiss the Civil Action without prejudice in return for which: Borrower (a) acknowledged it was indebted to Seller in the amount of $15,956,731.00; (b) agreed to pay this amount no later than March 31, 2007; and (c) executed a "CONFESSION OF JUDGMENT" in favor of Seller in this amount and agreed that the Confession of Judgment could be filed and executed upon if the full amount due was not paid by March 31, 2007. WHEREAS, full payment of the amount required under the Interim Resolution Agreement was not made to Seller by March 31, 2007 and, therefore, on April 13, 2007 Seller filed the Confession of Judgment and obtained a judgment in its favor against the Borrower in the amount of $15,401,175.44 as entered by the Supreme Court of the State of New York, County of New York, in the matter entitled KINGS ROAD INVESTMENTS, LTD. V. EARTH BIOFUELS, Inc., Index No. 105045 (the "JUDGMENT"). WHEREAS, Seller thereafter filed the Judgment and registered judgment liens against the assets of Borrower in various jurisdictions (collectively the "JUDGMENT LIENS"), with the last of the Judgment Liens having been filed in Dallas County, Texas on May 7, 2007. WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens on the basis of the representations, warranties and agreements contained in this Agreement, and upon the terms but subject to the conditions set forth herein. WHEREAS, Seller desires to assign to Buyer and Buyer desires to assume from Seller, its rights as a holder of the Note and the Warrants under (a) the Securities Purchase Agreement and (b) the Registration Rights Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 . PURCHASE OF NOTE AND WARRANTS (a) PURCHASE AND SALE. Subject to the covenants set forth in Section 6(a) and (b) below, Seller hereby agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens. The aggregate purchase price for the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens shall be the greater of (i) $2,500,000 and (ii) the amount paid by Buyer or any of its affiliates on, before or within one hundred and eighty (180) days after the Closing Date to holders of similar Notes to acquire such Notes, expressed as a percentage of the principal amount of such Notes, multiplied by the principal amount of Seller's Note (the "PURCHASE PRICE"). If by application of the immediately preceding clause (a)(ii), Buyer is required to pay to Seller an amount greater than the amount actually paid by Buyer on the Closing Date to Seller for the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens, then Buyer shall promptly pay such greater amount to Seller. (b) CLOSING. Closing of this Agreement shall be conducted no later than the second business day after satisfaction of the conditions to the closing set forth in Section 2 (the "CLOSING -2- DATE") at 10:00 a.m., New York City time, (or such other time as the parties may agree) at the office of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (c) FORM OF PAYMENT. On the Closing Date, Buyer shall pay the Purchase Price to Seller for the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens by wire transfer of immediately available funds in accordance with Seller's written wire instructions. SECTION 2 . CLOSING CONDITIONS. (a) BUYER CLOSING CONDITIONS. The obligation of Buyer to pay for the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens as provided herein on the Closing Date is subject to the following conditions (the "BUYER CLOSING CONDITIONS"), PROVIDED that these conditions are for Buyer's sole benefit and may be waived by Buyer at any time in its sole discretion by providing Seller with prior written consent thereof. (i) On the Closing Date, Buyer shall have received from Borrower the original Note and Seller shall have delivered to Buyer certificates representing the Warrants (in such denominations and registered in such names as Buyer shall request). (ii) The representations and warranties of Seller shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Seller shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller at or prior to the Closing Date. (iii) Buyer shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. (iv) Buyer shall have received the Interim Restructuring Agreement duly executed by the Borrower in favor of each of the holders of the Notes, substantially in the form attached hereto as EXHIBIT B. (v) Buyer shall have received from Seller an Assignment of Judgment duly executed by Seller substantially in the form attached hereto as EXHIBIT C and completed UCC-1 assignment forms duly executed by Seller for each jurisdiction in which the Judgment Liens have been filed. (vi) An order of the United States Bankruptcy Court for the District of Delaware shall have been entered on the docket and shall have become final and non-appealable dismissing the case under the Bankruptcy Code pending before the -3- Bankruptcy Court in which Borrower is a debtor, In re Earth Biofuels, Inc., No. 07-10928 (CSS). (b) SELLER CLOSING CONDITIONS. The obligation of Seller to sell the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens as provided herein on the Closing Date is subject to the following conditions (the "SELLER CLOSING CONDITIONS"), PROVIDED that these conditions are for Seller's sole benefit and may be waived by Seller at any time in its sole discretion by providing Buyer with prior written consent thereof. (i) The representations and warranties of Buyer shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Buyer at or prior to the Closing Date. (ii) Seller shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. (iii) Buyer shall have delivered to Seller the Purchase Price for the Note and the related Warrants being purchased by Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by Seller. (c) TERMINATION. In the event that any of the Buyer Closing Conditions or the Seller Closing Conditions are not satisfied by December 21, 2007, either party to this Agreement may terminate this Agreement immediately upon notice to the other party, at which time each party's obligations under this Agreement and the Release shall terminate and be null, void and of no further force and effect. In the event of a termination, all original documents transmitted to any party or otherwise held in escrow shall be returned to the executing party. SECTION 3 . SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby represents, warrants and covenants to Buyer as follows as of the date hereof: (a) This Agreement has been duly authorized, executed and delivered by Seller and constitutes a valid and legally binding agreement of Seller enforceable against Seller in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (b) All government and other consents that are required to have been obtained by Seller with respect to this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with. -4- (c) Seller has good and valid title to the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens free and clear of any lien, mortgage, security interest, pledge, charge or encumbrance of any kind ("LIENS"). Delivery of the Note and the Warrants to Buyer will pass to Buyer good and valid title to the Note and the Warrants, free and clear of any Liens. (d) The execution and delivery by Seller of this Agreement, the sale by Seller of the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens and the performance by Seller of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Seller, any order or judgment of any court or other agency of government applicable to Seller or any of Seller's assets or any material contractual restriction binding on or affecting Seller or any of Seller's assets. (e) Except for the Judgment and the Judgment Liens, there is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Seller, threatened against Seller which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (f) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated thereby. (g) Seller is acting solely for Seller's own account, and has made Seller's own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for Seller based upon Seller's own judgment and upon advice of such advisors as Seller deems necessary. Seller acknowledges and agrees that Seller is not relying, and has not relied, upon any communication (written or oral) of Buyer or any affiliate, employee or agent of Buyer with respect to the legal, accounting, tax or other implications of this Agreement and that Seller has conducted Seller's own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Agreement shall not be considered investment advice or a recommendation to enter into this Agreement. Seller acknowledges that neither Buyer nor any affiliate, employee or agent of Buyer is acting as a fiduciary for or an advisor to Seller in respect of this Agreement. (h) Seller has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (i) Seller is not selling the Note, the Warrants the Confession of Judgment, the Judgment or the Judgment Liens as a result of any advertisement, article, notice or other communication regarding the Note, the Warrants, the Confession of Judgment, the Judgment or the Judgment Liens published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. -5- (j) Seller is not an affiliate (as defined under Rule 405 promulgated under the 1933 Act) of the Borrower. (k) Seller acknowledges that (i) Buyer currently may have, and later may come into possession of, information with respect to Borrower that is not known to Seller and that may be material to a decision to sell the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens for the Purchase Price ("SELLER EXCLUDED INFORMATION"), (ii) Seller has determined to sell the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens notwithstanding its lack of knowledge of Seller Excluded Information, if any, and (iii) Buyer shall have no liability to Seller, and Seller waives and releases any claims that it might have against Buyer, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Seller Excluded Information, if any, in connection with Seller's sale of the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens for the Purchase Price in accordance herewith; provided, however, that Seller Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Buyer in this Agreement and provided further, that all written material concerning the Borrower that was provided by Buyer to Seller from the date the offer to purchase Seller's Note and Warrants was made by Buyer to Seller through and including the Closing Date was delivered to Seller in the same form that Buyer received it from the Borrower. SECTION 4 . BUYER REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and warrants to Seller as follows: (a) Buyer understands that, except as provided in the Registration Rights Agreement, the Note and the Warrants have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless subsequently registered thereunder or an exemption from such registration is available. (b) Buyer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Buyer and shall constitute the legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (c) The execution and delivery by Buyer of this Agreement, the purchase by Buyer of the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens and the performance by Buyer of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Buyer, any order or judgment of any court or other agency of government applicable to Buyer or any of Buyer's assets or any material contractual restriction binding on or affecting Buyer or any of Buyer's assets. (d) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Buyer, threatened against Buyer which could reasonably be expected in any -6- manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (e) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated thereby. (f) Buyer (i) is a sophisticated person with respect to the purchase of the Notes, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens; (ii) has adequate information concerning the business and financial condition of the Borrower to make an informed decision regarding the purchase of the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens; and (iii) has independently and without reliance upon Seller, and based on such information as Buyer has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Buyer has relied upon Seller's express representations, warranties and covenants in this Agreement. Buyer acknowledges that Seller has not given Buyer any investment advice, credit information or opinion on whether the purchase of the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens is prudent. (g) Buyer is purchasing the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens solely for its own account and not with a view to the distribution or resale thereof or its rights thereunder except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act. (h) Buyer is an "accredited investor" (as defined in Regulation D under the Securities Act) and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the transaction contemplated herein, and it is able to bear the economic risk of such purchase. (i) Buyer understands that the Note and the Warrants are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws. (j) Buyer understands that the Note, the Series A Warrant and the Series B Warrant shall bear the legends set forth in Section 2(g) of the Securities Purchase Agreement and such legends shall not be removed except in accordance with Sections 2(g) of the Securities Purchase Agreement. (k) Buyer is not purchasing the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens as a result of any advertisement, article, notice or other communication regarding the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. -7- (l) Buyer has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (m) Buyer has not, and to its knowledge no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Borrower. (n) Buyer acknowledges that (i) Seller currently may have, and later may come into possession of, information with respect to Borrower that is not known to Buyer and that may be material to a decision to purchase the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens for the Purchase Price ("BUYER EXCLUDED INFORMATION"), (ii) Buyer has determined to purchase the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens notwithstanding its lack of knowledge of Buyer Excluded Information, if any, and (iii) Seller shall have no liability to Buyer, and Buyer waives and releases any claims that it might have against Seller, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Buyer Excluded Information, if any, in connection with Buyer's purchase of the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens for the Purchase Price in accordance herewith; provided, however, that Buyer Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Seller in this Agreement. SECTION 5 . PAYMENT OF EXPENSES. Each party hereto shall be liable for its own costs and expenses in connection with the transactions contemplated hereby. SECTION 6 . COVENANTS. (a) Seller, for good and valuable consideration, effective as of the Closing Date, hereby assigns, transfers, conveys and delivers to Buyer all of its right, title and interest in and to the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens and with respect to such Note and the Warrants, to the Securities Purchase Agreement and the Registration Rights Agreement, except that Seller is retaining all rights to all claims, causes of action and suits against the Borrower and/or any third parties including, without limitation any such claims, causes of action and suits that may have arisen out of, or in connection with, the original issuance and sale of the Note and the Warrants by the Borrower to the Seller under the Securities Purchase Agreement and the Registration Rights Agreement, other than the Confession of Judgment, the Judgment and the Judgment Liens. (b) Buyer, for good and valuable consideration, effective as of the Closing Date, hereby agrees to be bound by the terms of the Securities Purchase Agreement and the Registration Rights Agreement with respect to the Note and the Warrants. In addition, Buyer shall execute and deliver to Seller and the Borrower the Notice and Acknowledgment agreeing to be bound by all of the provisions contained therein. Buyer hereby acknowledges that it is not purchasing Seller's rights to any claims, causes of action or suits against the Borrower and/or any third parties including, without limitation, any such claims, causes of action and suits that may have arisen out of, or in connection with, the original issuance and sale of the Note and the -8- Warrants by the Borrower to the Seller under the Securities Purchase Agreement and the Registration Rights Agreement other than the Confession of Judgment, the Judgment and the Judgment Liens. SECTION 7 . NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to Buyer: Castlerigg Master Investments Ltd. c/o Sandell Asset Management 40 West 57th Street 26th Floor New York, NY 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu Matthew Pliskin with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: Eleazer N. Klein, Esq. -9- If to Seller: Kings Road Investments Ltd. c/o Polygon Investment Partners LP 399 Park Avenue 22nd Floor New York, NY 10022 Telephone: (212) 359-7300 Facsimile: (212) 359-7303 Attention: Erik M.W. Caspersen Brandon L. Jones With a copy to: Latham & Watkins LLP 633 West Fifth Street Suite 4000 Los Angeles, CA 90071-2007 Telephone: (213) 891-8763 Facsimile: (213) 485-1234 Attention: Russell Sauer russ.sauer@lw.com Any party hereto may change the address for receipt of communications by giving written notice to the others. SECTION 8 . GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. SECTION 9 . ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements among Buyer, Seller, their affiliates and Persons acting on their behalf -10- with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Seller nor Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. SECTION 10 . SEVERABILITY. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). SECTION 11 . NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. SECTION 12 FURTHER ASSURANCES. Each party shall use its reasonable best efforts to do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 13 CONFIDENTIALITY. Each party agrees that, except as otherwise compelled by law, court order or by a competent regulator, it will not issue any reports, statements or releases, in each case relating to this Agreement or the transactions contemplated hereby, without the prior written consent of the other party hereto. Notwithstanding anything to the contrary set forth herein, any party and each representative of such party may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement, and all materials of any kind (including opinions or other tax analyses) related to such tax treatment and tax structure. SECTION 14 SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Note, the Warrants, the Confession of Judgment, the Judgment and the Judgment Liens. [The remainder of the page is intentionally left blank] -11- IN WITNESS WHEREOF, Buyer and Seller have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. KINGS ROAD INVESTMENTS LTD. By: ----------------------------------------- Name: Title: CASTLERIGG MASTER INVESTEMENTS LTD. By: ----------------------------------------- Name: Title: EXHIBIT A NOTICE AND ACKNOWLEDGEMENT AND JOINDER AGREEMENT This Notice and Acknowledgement and Joinder Agreement (the "NOTICE AND ACKNOWLEDGEMENT") dated as of November __, 2007 between Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and Castlerigg Master Investments Ltd. (the "ASSIGNEE"). Reference is made to (a) the Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among the Borrower and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), whereby the Assignor (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of Ten Million Dollars ($10,000,000) (the "NOTE"), (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 1,724,138 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant, the "WARRANTS") to acquire up to 1,724,138 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Series A Warrant Shares, the "WARRANT SHARES"), (b) the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Borrower has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws, and (c) the Securities Purchase Agreement (the "ASSIGNMENT AGREEMENT"), dated as of November __, 2007 by and between the Assignor and the Assignee, whereby the Assignor (i) sold to the Assignee the Note and the Warrants, and (ii) assigned to Assignee its rights as a holder of the Note and the Warrants pursuant to (x) the Securities Purchase Agreement and (y) the Registration Rights Agreement (collectively, the "SALE AND ASSIGNMENT"). The Borrower and the Assignee hereby agree as follows: 1. The Borrower hereby acknowledges that it has received notice of the Sale and Assignment in accordance with the Assignment Agreement as of the date first above written. 2. The Assignee (i) agrees that it will perform in accordance with their terms all of the agreements and obligations which by the terms of the Securities Purchase Agreement and the Registration Rights Agreement are required to be performed by it as a "Buyer" and, as of the Effective Date, the terms of the Securities Purchase Agreement and the Registration Rights Agreement shall be the binding obligations of the Assignee; (ii) represents and warrants that the representations and warranties of the "Buyer" contained in the Securities Purchase Agreement are true and correct as if made by the Assignee on the date hereof; and (iii) agrees that it shall execute and deliver such additional documents assuming the obligations of the Assignor and perform all tasks reasonably requested by the Borrower to effect the assignment contemplated hereby. 3. This agreement shall become effective on such date (the "EFFECTIVE DATE") as the Borrower, the Assignee and the Assignor have executed and delivered this Notice and Acknowledgement. 4. The Borrower and the Assignee agree that as of the Effective Date the Assignee shall be a party to the Securities Purchase Agreement and the Registration Rights Agreement and, to the extent provided in this Notice and Acknowledgement, have the rights and obligations under the Securities Purchase Agreement and the Registration Rights Agreement of the Assignor with respect to the Note and the Warrants. 5. Each of the parties represents and warrants that it is duly authorized to enter into this Notice and Acknowledgement. This Notice and Acknowledgement shall be binding on each party's successors and permitted assigns. This Notice and Acknowledgement is personal to the parties and may not be assigned or transferred by any party without the prior written consent of the other parties. 6. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. [The remainder of the page is intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Notice and Acknowledgement to be executed by their respective officers thereunto duly authorized, as of the date first above written. EARTH BIOFUELS, INC. By: ----------------------------------------- Name: Title: CASTLERIGG MASTER INVESTMENTS LTD. By: ----------------------------------------- Name: Title: Agreed and accepted, this ___ day of November, 2007 KINGS ROAD INVESTMENTS LTD. By: ----------------------------------------- Name: Title: EX-99 10 exhibit_26.txt EXHIBIT 26 - CRANSHIRE SPA Draft 11/12/2007 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made on November __, 2007 between Cranshire Capital L.P. ("SELLER") and Castlerigg Master Investments Ltd. ("BUYER"). WHEREAS, pursuant to the Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), Seller (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of One Million, Five Hundred Thousand Dollars ($1,500,000) (the "NOTE"), in substantially the form attached to the Securities Purchase Agreement as EXHIBIT A, (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 258,621 shares of Common Stock (as defined in the Securities Purchase Agreement) (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant, the "WARRANTS") to acquire up to 258,621 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Series A Warrant Shares, the "WARRANT SHARES"). WHEREAS, Borrower agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement (as defined below)), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws pursuant to the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"). WHEREAS, on June 13, 2007, Seller obtained a judgment against Borrower in an amount equal to $2,295,708.13 in the action entitled CRANSHIRE CAPITAL L.P. V. EARTH BIOFUELS, INC., Case No. 07 CV 187 (NRB) then pending in the District Court for the Southern District of New York ( the "CRANSHIRE JUDGMENT"). WHEREAS, Seller also served a Writ of Execution on JPMorgan Chase & Co. in connection with the Cranshire Judgment (the "WRIT OF EXECUTION', and together with the Cranshire Judgment, the "JUDGMENT"). WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller the Note, the Warrants and the Judgment on the basis of the representations, warranties and agreements contained in this Agreement, and upon the terms but subject to the conditions set forth herein. WHEREAS, Seller desires to assign to Buyer and Buyer desires to assume from Seller, its rights as a holder of the Note and the Warrants under (a) the Securities Purchase Agreement and (b) the Registration Rights Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. PURCHASE OF NOTE AND WARRANTS (a) PURCHASE AND SALE. Seller hereby agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Note, the Warrants and the Judgment. The aggregate purchase price for the Note, the Warrants and the Judgment shall be the greater of (i) $375,000 and (ii) the amount paid by Buyer or any of its affiliates on, before or within one hundred eighty (180) days after the Closing Date to any holder of a similar Note to acquire such Note, expressed as a percentage of the principal amount of such Note, multiplied by the principal amount of Seller's Note (the "PURCHASE PRICE"). If by application of the immediately preceding clause (a)(ii), Buyer is required to pay to Seller an amount greater than the amount actually paid by Buyer on the Closing Date to Seller for the Note, the Warrants and the Judgment, then Buyer shall promptly pay such greater amount to Seller. (b) CLOSING. Closing on this Agreement shall be conducted no later than the second business day after satisfaction (or waiver) of the conditions to the closing set forth in Section 2 (the "CLOSING DATE") at 10:00 a.m., New York City time, (or such other time as the parties may agree) at the office of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (c) FORM OF PAYMENT. On the Closing Date, Buyer shall pay the Purchase Price to Seller for the Note, the Warrants and the Judgment by wire transfer of immediately available funds in accordance with Seller's written wire instructions. SECTION 2. CLOSING CONDITIONS. (a) BUYER CLOSING CONDITIONS. The obligation of Buyer to pay for the Note, the Warrants and the Judgment as provided herein on the Closing Date is subject to the following conditions (the "BUYER CLOSING CONDITIONS"), PROVIDED that these conditions are for Buyer's sole benefit and may be waived by Buyer at any time in its sole discretion by providing Seller with prior written consent thereof. (i) On the Closing Date, Seller shall have delivered to Buyer certificates representing the Note and the Warrants (in such denominations and registered in such names as Buyer shall request). (ii) The representations and warranties of Seller shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and - 2 - as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Seller shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller at or prior to the Closing Date. (iii) Buyer shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER") duly executed by all parties thereto. (iv) Buyer shall have received the Interim Restructuring Agreement duly executed by the Borrower in favor of each of the holders of the Notes, substantially in the form attached hereto as EXHIBIT B. (v) Buyer shall have received the Mutual Release attached as EXHIBIT C (the "RELEASE") hereto duly executed by Seller in favor of Borrower. (vi) Buyer shall have received from Seller an Assignment of Judgment duly executed by Seller substantially in the form attached hereto as EXHIBIT D. (vii) An order of the United States Bankruptcy Court for the District of Delaware shall have been entered on the docket and shall have become final and non-appealable dismissing the case under the Bankruptcy Code pending before the Bankruptcy Court in which Borrower is a debtor, In re Earth Biofuels, Inc., No. 07-10928 (CSS). (b) SELLER CLOSING CONDITIONS. The obligation of Seller to sell the Note, the Warrants and the Judgment as provided herein on the Closing Date is subject to the following conditions (the "SELLER CLOSING CONDITIONS"), PROVIDED that these conditions are for Seller's sole benefit and may be waived by Seller at any time in its sole discretion by providing Buyer with prior written consent thereof. (i) The representations and warranties of Buyer shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Buyer at or prior to the Closing Date. (ii) Seller shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER") duly executed by all parties thereto. - 3 - (iii) Seller shall have received the Release executed by the Borrower in favor of the Seller. (iv) Buyer shall have delivered to Seller the Purchase Price for the Note, the related Warrants and the Judgment being purchased by Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by Seller. (c) TERMINATION. In the event that any of the Buyer Closing Conditions or the Seller Closing Conditions are not satisfied by December 21, 2007, either party to this Agreement may terminate this Agreement immediately upon notice to the other party, at which time each party's obligations under this Agreement and the Release shall terminate and be null, void and of no further force and effect. In the event of a termination, all original documents transmitted to any party or otherwise held in escrow shall be returned to the executing party. SECTION 3. SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby represents, warrants and covenants to Buyer as follows as of the date hereof: (a) This Agreement has been duly authorized, executed and delivered by Seller and constitutes a valid and legally binding agreement of Seller enforceable against Seller in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (b) All government and other consents that are required to have been obtained by Seller with respect to this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with. (c) Seller has good and valid title to the Note, the Warrants and the Cranshire Judgment free and clear of any lien, mortgage, security interest, pledge, charge or encumbrance of any kind ("LIENS") other than restrictions on transfer imposed by the terms of the Securities Purchase Agreement, the Registration Rights Agreement, the Note, the Warrants and applicable securities laws. Delivery of the Note and the Warrants to Buyer will pass to Buyer good and valid title to the Note and the Warrants, free and clear of any Liens, other than restrictions on transfer imposed by the terms of the Securities Purchase Agreement, the Registration Rights Agreement, the Note, the Warrants and applicable securities laws. (d) The execution and delivery by Seller of this Agreement, the sale by Seller of the Note, the Warrants and the Judgment and the performance by Seller of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Seller, any order or judgment of any court or other agency of government applicable to Seller or any of Seller's assets or any material contractual restriction binding on or affecting Seller or any of Seller's assets. - 4 - (e) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Seller, threatened against Seller which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (f) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated thereby. (g) Seller is acting solely for Seller's own account, and has made Seller's own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for Seller based upon Seller's own judgment and upon advice of such advisors as Seller deems necessary. Seller acknowledges and agrees that Seller is not relying, and has not relied, upon any communication (written or oral) of Buyer or any affiliate, employee or agent of Buyer with respect to the legal, accounting, tax or other implications of this Agreement and that Seller has conducted Seller's own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Agreement shall not be considered investment advice or a recommendation to enter into this Agreement. Seller acknowledges that neither Buyer nor any affiliate, employee or agent of Buyer is acting as a fiduciary for or an advisor to Seller in respect of this Agreement. (h) Seller has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (i) Seller is not selling the Note, the Warrants or the Judgment as a result of any advertisement, article, notice or other communication regarding the Note, the Warrants or the Judgment published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (j) Neither the Seller nor any affiliate of the Seller (i) has any relationship with the Company or any of its subsidiaries other than its ownership of the Note and the Warrants issued to the Seller on or about July 26, 2006; (ii) directly or indirectly controls the Company or any of its subsidiaries; or (iii) is a director or officer of the Company or any of its subsidiaries. (k) Seller acknowledges that (i) Buyer currently may have, and later may come into possession of, information with respect to Borrower that is not known to Seller and that may be material to a decision to sell the Note, the Warrants and the Judgment for the Purchase Price ("SELLER EXCLUDED INFORMATION"), (ii) Seller has determined to sell the Note, the Warrants and the Judgment notwithstanding its lack of knowledge of Seller Excluded Information, if any, and (iii) Buyer shall have no liability to Seller, and Seller waives and releases any claims that it might have against Buyer, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Seller Excluded Information, if any, in connection with Seller's sale of the Note, the Warrants and the Judgment for the Purchase Price in accordance herewith; provided, - 5 - however, that Seller Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Buyer in this Agreement and provided further, that all written material concerning the Borrower that was provided by Buyer to Seller from the date the offer to purchase Seller's Note, Warrants and Judgment was made by Buyer to Seller through and including the Closing Date was delivered to Seller in the same form that Buyer received it from the Borrower. SECTION 4. BUYER REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and warrants to Seller as follows: (a) Buyer understands that, except as and to the extent provided in the Registration Rights Agreement, the Note and the Warrants have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless subsequently registered thereunder or an exemption from such registration is available. (b) Buyer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Buyer and shall constitute the legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (c) The execution and delivery by Buyer of this Agreement, the purchase by Buyer of the Note, the Warrants and the Judgment and the performance by Buyer of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Buyer, any order or judgment of any court or other agency of government applicable to Buyer or any of Buyer's assets or any material contractual restriction binding on or affecting Buyer or any of Buyer's assets. (d) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Buyer, threatened against Buyer which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (e) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated thereby. (f) Buyer (i) is a sophisticated person with respect to the purchase of the Note, the Warrants and the Judgment; (ii) has adequate information concerning the business and financial condition of the Borrower to make an informed decision regarding the purchase of the Note, the Warrants and the Judgment; and (iii) has independently and without reliance upon Seller, and - 6 - based on such information as Buyer has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Buyer has relied upon Seller's express representations, warranties and covenants in this Agreement. Buyer acknowledges that Seller has not given Buyer any investment advice, credit information or opinion on whether the purchase of the Note, the Warrants and the Judgment is prudent. (g) Buyer is purchasing the Note, the Warrants and the Judgment solely for its own account and not with a view to the distribution or resale of the Note, the Warrants and the Judgment or its rights thereunder except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act. (h) Buyer is an "accredited investor" (as defined in Regulation D under the Securities Act) and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the transaction contemplated herein, and it is able to bear the economic risk of such purchase. (i) Buyer understands that the Note and the Warrants are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws. (j) Buyer understands that the Note, the Series A Warrant and the Series B Warrant shall bear the legends set forth in Section 2(g) of the Securities Purchase Agreement and such legends shall not be removed except in accordance with Sections 2(g) of the Securities Purchase Agreement. (k) Buyer is not purchasing the Note, the Warrants or the Judgment as a result of any advertisement, article, notice or other communication regarding the Note, the Warrants or the Judgment published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (l) Buyer has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (m) Buyer has not, and to its knowledge no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Borrower. (n) Buyer acknowledges that (i) Seller currently may have, and later may come into possession of, information with respect to Borrower that is not known to Buyer and that may be material to a decision to purchase the Note, the Warrants and the Judgment for the Purchase Price ("BUYER EXCLUDED INFORMATION"), (ii) Buyer has determined to purchase the Note, the Warrants and the Judgment notwithstanding its lack of knowledge of Buyer Excluded Information, if any, and (iii) Seller shall have no liability to Buyer, and Buyer waives and releases any claims that it might have against Seller, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Buyer Excluded Information, if any, in - 7 - connection with Buyer's purchase of the Note, the Warrants and the Judgment for the Purchase Price in accordance herewith; provided, however, that Buyer Excluded Information, if any, shall not and does affect the truth or accuracy of the representations or warranties of Seller in this Agreement SECTION 5. PAYMENT OF EXPENSES. Each party hereto shall be liable for its own costs and expenses in connection with the transactions contemplated hereby. SECTION 6. COVENANTS. (a) Seller, for good and valuable consideration, effective as of the Closing Date, hereby assigns, transfers, conveys and delivers to Buyer all of its right, title and interest in and to the Note, the Warrants and the Judgment, and with respect to such Note and the Warrants, to the Securities Purchase Agreement and the Registration Rights Agreement. (b) Buyer, for good and valuable consideration, effective as of the Closing Date, hereby agrees to be bound by the terms of the Securities Purchase Agreement and the Registration Rights Agreement with respect to the Note and the Warrants. In addition, Buyer shall execute and deliver to Seller and the Borrower the Notice and Acknowledgment agreeing to be bound by all of the provisions contained therein. SECTION 7. NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to Buyer: Castlerigg Master Investments Ltd. c/o Sandell Asset Management 40 West 57th Street 26th Floor New York, NY 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu Matthew Pliskin with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: Eleazer N. Klein, Esq. - 8 - If to Seller: Cranshire Capital L.P. c/o Downsview Capital, Inc. 3100 Dundee Road Suite 703 Northbrook, Illinois 60062 Attention: Mitchell P. Kopin Telephone: (847) 562-9030 Facsimile: (847) 562-9031 Email: mkopin@cranshirecapital.com With a copy to: Greenberg Traurig, LLP 77 W. Wacker Drive, Suite 2500 Chicago, Illinois 60601 Telephone: (312) 456-8400 Facsimile: (312) 456-8435 Attention: Todd A. Mazur, Esq. Peter H. Lieberman, Esq. Any party hereto may change the address for receipt of communications by giving written notice to the others. SECTION 8. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. SECTION 9. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements among Buyer, Seller, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced - 9 - herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Seller nor Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. SECTION 10. SEVERABILITY. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). SECTION 11. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. SECTION 12. FURTHER ASSURANCES. Each party shall use its reasonable best efforts to do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 13. CONFIDENTIALITY. Each party agrees that, except as otherwise compelled by law, court order or by a competent regulator, it will not issue any reports, statements or releases, in each case relating to this Agreement or the transactions contemplated hereby, without the prior written consent of the other party hereto. Notwithstanding anything to the contrary set forth herein, any party and each representative of such party may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement, and all materials of any kind (including opinions or other tax analyses) related to such tax treatment and tax structure. SECTION 14. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Note, the Warrants and the Judgment. [The remainder of the page is intentionally left blank] - 10 - IN WITNESS WHEREOF, Buyer and Seller have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. CRANSHIRE CAPITAL L.P. By: Downsview Capital, Inc. Its: General Partner By: ----------------------------------- Name: Title: CASTLERIGG MASTER INVESTEMENTS LTD. By: ----------------------------------- Name: Title: EXHIBIT A NOTICE AND ACKNOWLEDGEMENT AND JOINDER AGREEMENT This Notice and Acknowledgement and Joinder Agreement (the "NOTICE AND ACKNOWLEDGEMENT") dated as of November __, 2007 between Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and Castlerigg Master Investments Ltd. (the "ASSIGNEE"). Reference is made to (a) the Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among the Borrower and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), whereby the Assignor (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of One Million, Five Hundred Thousand Dollars ($1,500,000) (the "NOTE"), (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 258,621 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant, the "WARRANTS") to acquire up to 258,621 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Series A Warrant Shares, the "WARRANT SHARES"), (b) the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Borrower has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws, and (c) the Securities Purchase Agreement (the "ASSIGNMENT AGREEMENT"), dated as of November __, 2007, by and between the Assignor and the Assignee, whereby the Assignor (i) sold to the Assignee the Note and the Warrants, and (ii) assigned to Assignee its rights as a holder of the Note and the Warrants pursuant to (x) the Securities Purchase Agreement and (y) the Registration Rights Agreement (collectively, the "SALE AND ASSIGNMENT"). The Borrower and the Assignee hereby agree as follows: 1. The Borrower hereby acknowledges that it has received notice of the Sale and Assignment in accordance with the Assignment Agreement as of the date first above written. 2. The Assignee (i) agrees that it will perform in accordance with their terms all of the agreements and obligations which by the terms of the Securities Purchase Agreement and the Registration Rights Agreement are required to be performed by it as a "Buyer" and, as of the Effective Date, the terms of the Securities Purchase Agreement and the Registration Rights Agreement shall be the binding obligations of the Assignee; (ii) represents and warrants that the representations and warranties of the "Buyer" contained in the Securities Purchase Agreement are true and correct as if made by the Assignee on the date hereof; and (iii) agrees that it shall execute and deliver such additional documents assuming the obligations of the Assignor and perform all tasks reasonably requested by the Borrower to effect the assignment contemplated hereby. 3. This agreement shall become effective on such date (the "EFFECTIVE DATE") as the Borrower, the Assignee and the Assignor have executed and delivered this Notice and Acknowledgement. 4. The Borrower and the Assignee agree that as of the Effective Date the Assignee shall be a party to the Securities Purchase Agreement and the Registration Rights Agreement and, to the extent provided in this Notice and Acknowledgement, have the rights and obligations under the Securities Purchase Agreement and the Registration Rights Agreement of the Assignor with respect to the Note and the Warrants. 5. Each of the parties represents and warrants that it is duly authorized to enter into this Notice and Acknowledgement. This Notice and Acknowledgement shall be binding on each party's successors and permitted assigns. This Notice and Acknowledgement is personal to the parties and may not be assigned or transferred by any party without the prior written consent of the other parties. 6. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. [The remainder of the page is intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Notice and Acknowledgement to be executed by their respective officers thereunto duly authorized, as of the date first above written. EARTH BIOFUELS, INC. By: ----------------------------------- Name: Title: CASTLERIGG MASTER INVESTMENTS LTD. By: ----------------------------------- Name: Title: Agreed and accepted, this ___ day of November, 2007 CRANSHIRE CAPITAL L.P. By: Downsview Capital, Inc. Its: General Partner By: ----------------------------------- Name: Title: EX-99 11 exhibit_27.txt EXHIBIT 27 - PORTSIDE GROWTH AND OPPORTUNITY FUND SPA Draft 11/12/2007 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made on November __, 2007 between Portside Growth and Opportunity Fund ("SELLER") and Castlerigg Master Investments Ltd. ("BUYER"). WHEREAS, pursuant to the Securities Purchase Agreement (the " SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), Seller (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of Two Million Dollars ($2,000,000) (the "NOTE"), in substantially the form attached to the Securities Purchase Agreement as EXHIBIT A, (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (as defined in the Securities Purchase Agreement) (the "SERIES A WARRANT"), to acquire up to 344,828 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant, the "WARRANTS") to acquire up to 344,828 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Series A Warrant Shares, the "WARRANT SHARES"). WHEREAS, Borrower agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement (as defined below)), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws pursuant to the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"). WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller (i) a Note in aggregate principal amount of One Million Dollars ($1,000,000) (the "PURCHASED NOTE"), (ii) a Series A Warrant to acquire up to 172,414 Series A Warrant Shares (the "PURCHASED SERIES A WARRANT") and (iii) a Series B Warrant to acquire up to 172,414 Series B Warrant Shares (the "PURCHASED SERIES B WARRANT", and together with the Purchased Series A Warrant, the "PURCHASED WARRANTS"), in each case, on the basis of the representations, warranties and agreements contained in this Agreement, and upon the terms but subject to the conditions set forth herein. WHEREAS, Seller desires to assign to Buyer and Buyer desires to assume from Seller, its rights as a holder of the Purchased Note and the Purchased Warrants under (a) the Securities Purchase Agreement and (b) the Registration Rights Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 . PURCHASE OF PURCHASED NOTE AND PURCHASED WARRANTS (a) PURCHASE AND SALE. Seller hereby agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Purchased Note and the Purchased Warrants. The aggregate purchase price for the Purchased Note and the Purchased Warrants shall be the greater of (i) $250,000 and (ii) the amount paid by Buyer or any of its affiliates on, before or within one hundred eighty (180) days after the Closing Date to holders of similar Notes to acquire such Notes, expressed as a percentage of the principal amount of such Notes, multiplied by the principal amount of Seller's Note (the "PURCHASE PRICE"). If by application of the immediately preceding clause (a)(ii), Buyer is required to pay to Seller an amount greater than the amount actually paid by Buyer on the Closing Date to Seller for the Purchased Notes and the Purchased Warrants, then Buyer shall promptly pay such greater amount to Seller. (b) CLOSING. Closing of this Agreement shall be conducted no later than the second business day after satisfaction of the conditions to the closing set forth in Section 2 (the "CLOSING DATE") at 10:00 a.m., New York City time, (or such other time as the parties may agree) at the office of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (c) FORM OF PAYMENT. On the Closing Date, Buyer shall pay the Purchase Price to Seller for the Purchased Note and the Purchased Warrants by wire transfer of immediately available funds in accordance with Seller's written wire instructions. SECTION 2 . CLOSING CONDITIONS. (a) BUYER CLOSING CONDITIONS. The obligation of Buyer to pay for the Purchased Note and the Purchased Warrants as provided herein on the Closing Date is subject to the following conditions (the "BUYER CLOSING CONDITIONS"), PROVIDED that these conditions are for Buyer's sole benefit and may be waived by Buyer at any time in its sole discretion by providing Seller with prior written consent thereof. (i) On the Closing Date, Seller shall have delivered to Buyer certificates representing the Purchased Note and the Purchased Warrants (in such denominations and registered in such names as Buyer shall request). (ii) The representations and warranties of Seller shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Seller shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller at or prior to the Closing Date. -2- (iii) Buyer shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. (iv) Buyer shall have received the Interim Restructuring Agreement duly executed by the Borrower in favor of each of the holders of the Notes, substantially in the form attached hereto as EXHIBIT B. (v) Buyer shall have received the Mutual Release attached hereto as EXHIBIT C (the "RELEASE") executed by Seller in favor of the Borrower. (vi) An order of the United States Bankruptcy Court for the District of Delaware shall have been entered on the docket and shall have become final and non-appealable dismissing the case under the Bankruptcy Code pending before the Bankruptcy Court in which Borrower is a debtor, In re Earth Biofuels, Inc., No. 07-10928 (CSS). (b) SELLER CLOSING CONDITIONS. The obligation of Seller to sell the Purchased Note and the Purchased Warrants as provided herein on the Closing Date is subject to the following conditions (the "SELLER CLOSING CONDITIONS"), PROVIDED that these conditions are for Seller's sole benefit and may be waived by Seller at any time in its sole discretion by providing Buyer with prior written consent thereof. (i) The representations and warranties of Buyer shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date), and Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Buyer at or prior to the Closing Date. (ii) Seller shall have received this Agreement and the Notice and Acknowledgment and Joinder Agreement attached hereto as EXHIBIT A (the "NOTICE AND ACKNOWLEDGMENT OF TRANSFER ") duly executed by all parties thereto. (iii) Seller shall have received the Release executed by the Borrower in favor of the Seller. (iv) Buyer shall have delivered to Seller the Purchase Price for the Purchased Note and the related Purchased Warrants being purchased by Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by Seller. (c) TERMINATION. In the event that any of the Buyer Closing Conditions or the Seller Closing Conditions are not satisfied by December 21, 2007, either party to this Agreement may -3- terminate this Agreement immediately upon notice to the other party, at which time each party's obligations under this Agreement and under the Release shall terminate and be null, void and of no further force and effect. In the event of a termination, all original documents transmitted to any party or otherwise held in escrow shall be returned to the executing party. SECTION 3 . SELLER REPRESENTATIONS AND WARRANTIES. Seller hereby represents, warrants and covenants to Buyer as follows as of the date hereof: (a) This Agreement has been duly authorized, executed and delivered by Seller and constitutes a valid and legally binding agreement of Seller enforceable against Seller in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (b) All government and other consents that are required to have been obtained by Seller with respect to this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with. (c) Seller has good and valid title to the Purchased Note and the Purchased Warrants free and clear of any lien, mortgage, security interest, pledge, charge or encumbrance of any kind ("LIENS"). Delivery of the Purchased Note and the Purchased Warrants to Buyer will pass to Buyer good and valid title to the Purchased Note and the Purchased Warrants, free and clear of any Liens. (d) The execution and delivery by Seller of this Agreement, the purchase by Seller of the Purchased Note and the Purchased Warrants and the performance by Seller of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Seller, any order or judgment of any court or other agency of government applicable to Seller or any of Seller's assets or any material contractual restriction binding on or affecting Seller or any of Seller's assets. (e) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Seller, threatened against Seller which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (f) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated thereby. (g) Seller is acting solely for Seller's own account, and has made Seller's own independent decision to enter into this Agreement and as to whether this Agreement is appropriate or proper for Seller based upon Seller's own judgment and upon advice of such advisors as Seller deems necessary. Seller acknowledges and agrees that Seller is not relying, -4- and has not relied, upon any communication (written or oral) of Buyer or any affiliate, employee or agent of Buyer with respect to the legal, accounting, tax or other implications of this Agreement and that Seller has conducted Seller's own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Agreement shall not be considered investment advice or a recommendation to enter into this Agreement. Seller acknowledges that neither Buyer nor any affiliate, employee or agent of Buyer is acting as a fiduciary for or an advisor to Seller in respect of this Agreement. (h) Seller has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (i) Seller is not selling the Purchased Note and the Purchased Warrants as a result of any advertisement, article, notice or other communication regarding the Purchased Note and the Purchased Warrants published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (j) Seller is not an affiliate (as defined under Rule 405 promulgated under the 1933 Act) of the Borrower. (k) Seller acknowledges that (i) Buyer currently may have, and later may come into possession of, information with respect to Borrower that is not known to Seller and that may be material to a decision to sell the Purchased Note and the Purchased Warrants for the Purchase Price ("SELLER EXCLUDED INFORMATION"), (ii) Seller has determined to sell the Purchased Note and the Purchased Warrants notwithstanding its lack of knowledge of Seller Excluded Information, if any, and (iii) Buyer shall have no liability to Seller, and Seller waives and releases any claims that it might have against Buyer, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Seller Excluded Information, if any, in connection with Seller's sale of the Purchased Note and the Purchased Warrants for the Purchase Price in accordance herewith; provided, however, that Seller Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Buyer in this Agreement and, provided further, that all written material concerning the Borrower that was provided by Buyer to Seller from the date the offer to purchase Seller's Note and Warrants was made by Buyer to Seller through and including the Closing Date was delivered to Seller in the same form that Buyer received it from the Borrower. SECTION 4 . BUYER REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and warrants to Seller as follows: (a) Buyer understands that, except as provided in the Registration Rights Agreement, the Purchased Note and the Purchased Warrants have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless subsequently registered thereunder or an exemption from such registration is available. -5- (b) Buyer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Buyer and shall constitute the legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (c) The execution and delivery by Buyer of this Agreement, the purchase by Buyer of the Purchased Note and the Purchased Warrants and the performance by Buyer of its obligations under this Agreement do not and will not violate or conflict with any law applicable to Buyer, any order or judgment of any court or other agency of government applicable to Buyer or any of Buyer's assets or any material contractual restriction binding on or affecting Buyer or any of Buyer's assets. (d) There is no action, suit, proceeding, judgment, claim or investigation pending, or to the knowledge of Buyer, threatened against Buyer which could reasonably be expected in any manner to challenge or seek to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. (e) No authorization, consent, approval or other order of, or declaration to or filing with, any governmental agency or body or other person is required for the valid authorization, execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated thereby. (f) Buyer (i) is a sophisticated person with respect to the purchase of the Purchased Notes and the Purchased Warrants; (ii) has adequate information concerning the business and financial condition of the Borrower to make an informed decision regarding the purchase of the Purchased Note and the Purchased Warrants; and (iii) has independently and without reliance upon Seller, and based on such information as Buyer has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Buyer has relied upon Seller's express representations, warranties and covenants in this Agreement. Buyer acknowledges that Seller has not given Buyer any investment advice, credit information or opinion on whether the purchase of the Purchased Note and the Purchased Warrants is prudent. (g) Buyer is purchasing the Purchased Note and the Purchased Warrants solely for its own account and not with a view to the distribution or resale of the Purchased Note and the Purchased Warrants or its rights thereunder except pursuant to a registration statement declared effective under, or an exemption from the registration requirements of, the Securities Act. (h) Buyer is an "accredited investor" (as defined in Regulation D under the Securities Act) and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the transaction contemplated herein, and it is able to bear the economic risk of such purchase. -6- (i) Buyer understands that the Purchased Note and the Purchased Warrants are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws. (j) Buyer understands that the Purchased Note, the Series A Purchased Warrant and the Series B Purchased Warrant shall bear the legends set forth in Section 2(g) of the Securities Purchase Agreement and such legends shall not be removed except in accordance with Sections 2(g) of the Securities Purchase Agreement. (k) Buyer is not purchasing the Purchased Note and the Purchased Warrants as a result of any advertisement, article, notice or other communication regarding the Purchased Note and the Purchased Warrants published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (l) Buyer has taken no action that would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. (m) Buyer has not, and to its knowledge no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Borrower. (n) Buyer acknowledges that (i) Seller currently may have, and later may come into possession of, information with respect to Borrower that is not known to Buyer and that may be material to a decision to purchase the Purchased Note and the Purchased Warrants for the Purchase Price ("BUYER EXCLUDED INFORMATION"), (ii) Buyer has determined to purchase the Purchased Note and the Purchased Warrants notwithstanding its lack of knowledge of Buyer Excluded Information, if any, and (iii) Seller shall have no liability to Buyer, and Buyer waives and releases any claims that it might have against Seller, whether under applicable securities laws or otherwise, with respect to the nondisclosure of Buyer Excluded Information, if any, in connection with Buyer's purchase of the Purchased Note and the Purchased Warrants for the Purchase Price in accordance herewith; provided, however, that Buyer Excluded Information, if any, shall not and does not affect the truth or accuracy of the representations or warranties of Seller in this Agreement. SECTION 5 . PAYMENT OF EXPENSES. Each party hereto shall be liable for its own costs and expenses in connection with the transactions contemplated hereby. SECTION 6 . COVENANTS. (a) Seller, for good and valuable consideration, effective as of the Closing Date, hereby assigns, transfers, conveys and delivers to Buyer all of its right, title and interest in and to the Purchased Note and the Purchased Warrants, and with respect to such Purchased Note and the Purchased Warrants, to the Securities Purchase Agreement and the Registration Rights Agreement. -7- (b) Buyer, for good and valuable consideration, effective as of the Closing Date, hereby agrees to be bound by the terms of the Securities Purchase Agreement and the Registration Rights Agreement with respect to the Purchased Note and the Purchased Warrants. In addition, Buyer shall execute and deliver to Seller and the Borrower the Notice and Acknowledgment agreeing to be bound by all of the provisions contained therein. SECTION 7 . NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to Buyer: Castlerigg Master Investments Ltd. c/o Sandell Asset Management 40 West 57th Street 26th Floor New York, NY 10019 Telephone: (212) 603-5700 Facsimile: (212) 603-5710 Attention: Cem Hacioglu Matthew Pliskin with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: Eleazer N. Klein, Esq. If to Seller: Portside Growth and Opportunity Fund c/o Ramius Capital Group, L.L.C. 666 Third Avenue 26th Floor New York, New York 10017 Telephone: (212) 845-7955 Facsimile: (212) 201-4802 Attention: Jeffrey Smith Owen Littman Any party hereto may change the address for receipt of communications by giving written notice to the others. -8- SECTION 8 . GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. SECTION 9 . ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements among Buyer, Seller, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Seller nor Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. SECTION 10 . SEVERABILITY. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). SECTION 11 . NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. -9- SECTION 12 FURTHER ASSURANCES. Each party shall use its reasonable best efforts to do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 13 CONFIDENTIALITY. Each party agrees that, except as otherwise compelled by law, court order or by a competent regulator, it will not issue any reports, statements or releases, in each case relating to this Agreement or the transactions contemplated hereby, without the prior written consent of the other party hereto. Notwithstanding anything to the contrary set forth herein, any party and each representative of such party may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement, and all materials of any kind (including opinions or other tax analyses) related to such tax treatment and tax structure. SECTION 14 SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Purchased Note and the Purchased Warrants. [The remainder of the page is intentionally left blank] -10- IN WITNESS WHEREOF, Buyer and Seller have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. PORTSIDE GROWTH AND OPPORTUNITY FUND By: ------------------------------------------- Name: Title: CASTLERIGG MASTER INVESTEMENTS LTD. By: ------------------------------------------- Name: Title: EXHIBIT A NOTICE AND ACKNOWLEDGEMENT AND JOINDER AGREEMENT This Notice and Acknowledgement and Joinder Agreement (the "NOTICE AND ACKNOWLEDGEMENT") dated as of November __, 2007 between Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "BORROWER") and Castlerigg Master Investments Ltd. (the "ASSIGNEE"). Reference is made to (a) the Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT"), dated as of July 24, 2006, by and among the Borrower and the investors listed on the Schedule of Buyers attached thereto (individually, a "BUYER" and collectively, the "BUYERS"), whereby the Assignor (as a Buyer) purchased, and the Borrower sold, upon the terms and conditions stated in the Securities Purchase Agreement, (i) a senior convertible note in aggregate principal amount of one Million Dollars ($1,000,000) (the "NOTE"), (ii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-1 (the "SERIES A WARRANT"), to acquire up to 172,414 shares of Common Stock (the "SERIES A WARRANT SHARES") and (iii) a warrant, in substantially the form attached to the Securities Purchase Agreement as EXHIBIT B-2 (the "SERIES B WARRANT," and together with the Series A Warrant, the "WARRANTS") to acquire up to 172,414 shares of Common Stock (the "SERIES B WARRANT SHARES," and together with the Series A Warrant Shares, the "WARRANT SHARES"), (b) the Registration Rights Agreement, dated as of July 24, 2006, by and among the Borrower and Buyers (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Borrower has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the "1933 ACT") and the rules and regulations promulgated thereunder, and applicable state securities laws, and (c) the Securities Purchase Agreement (the "ASSIGNMENT AGREEMENT"), dated as of November __, 2007, by and between the Assignor and the Assignee, whereby the Assignor (i) sold to the Assignee the Note and the Warrants, and (ii) assigned to Assignee its rights as a holder of the Note and the Warrants pursuant to (x) the Securities Purchase Agreement and (y) the Registration Rights Agreement (collectively, the "SALE AND ASSIGNMENT"). The Borrower and the Assignee hereby agree as follows: 1. The Borrower hereby acknowledges that it has received notice of the Sale and Assignment in accordance with the Assignment Agreement as of the date first above written. 2. The Assignee (i) agrees that it will perform in accordance with their terms all of the agreements and obligations which by the terms of the Securities Purchase Agreement and the Registration Rights Agreement are required to be performed by it as a "Buyer" and, as of the Effective Date, the terms of the Securities Purchase Agreement and the Registration Rights Agreement shall be the binding obligations of the Assignee; (ii) represents and warrants that the representations and warranties of the "Buyer" contained in the Securities Purchase Agreement are true and correct as if made by the Assignee on the date hereof; and (iii) agrees that it shall execute and deliver such additional documents assuming the obligations of the Assignor and perform all tasks reasonably requested by the Borrower to effect the assignment contemplated hereby. 3. This agreement shall become effective on such date (the "EFFECTIVE DATE") as the Borrower, the Assignee and the Assignor have executed and delivered this Notice and Acknowledgement. 4. The Borrower and the Assignee agree that as of the Effective Date the Assignee shall be a party to the Securities Purchase Agreement and the Registration Rights Agreement and, to the extent provided in this Notice and Acknowledgement, have the rights and obligations under the Securities Purchase Agreement and the Registration Rights Agreement of the Assignor with respect to the Note and the Warrants. 5. Each of the parties represents and warrants that it is duly authorized to enter into this Notice and Acknowledgement. This Notice and Acknowledgement shall be binding on each party's successors and permitted assigns. This Notice and Acknowledgement is personal to the parties and may not be assigned or transferred by any party without the prior written consent of the other parties. 6. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. EACH PARTY AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE BROUGHT IN A U.S. FEDERAL OR STATE COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY, CITY, AND STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURT AND HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY DEFENSE OF AN INCONVENIENT FORUM OR A LACK OF PERSONAL JURISDICTION TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING AND ANY RIGHT OF JURISDICTION OR VENUE ON ACCOUNT OF THE PLACE OF RESIDENCE OR DOMICILE OF ANY PARTY HERETO. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. [The remainder of the page is intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Notice and Acknowledgement to be executed by their respective officers thereunto duly authorized, as of the date first above written. EARTH BIOFUELS, INC. By: -------------------------------------- Name: Title: CASTLERIGG MASTER INVESTMENTS LTD. By: -------------------------------------- Name: Title: Agreed and accepted, this ___ day of November, 2007 PORTSIDE GROWTH AND OPPORTUNITY FUND By: ------------------------------------- Name: Title EX-99 12 exhibit_28.txt EXHIBIT 28 - BLOCKER LETTER CASTLERIGG MASTER INVESTMENTS LTD. c/o Sandell Asset Management Corp. 40 West 57th Street 26th Floor New York, New York 10019 November 8, 2007 Earth BioFuels, Inc. 3001 Knox Street, Suite 403 Dallas, Texas 75205 Attention: Dennis McLaughlin Re: Note and Warrants Blockers Dear Mr. McLaughlin: Reference is hereby made to that certain Securities Purchase Agreement, dated as of July 24, 2006, by and among Earth BioFuels, Inc. (the "COMPANY"), Castlerigg Master Investments Ltd. ("CASTLERIGG") and certain other buyers (the "SECURITIES PURCHASE AGREEMENT"), whereby the Company issued to Castlerigg (i) that certain Senior Convertible Note with a principal amount of $11,500,000 (the "CASTLERIGG NOTE"), (ii) that certain Series A Warrant initially exercisable into 1,982,759 shares of common stock, $0.001 par value (the "COMMON STOCK") of the Company (the "CASTLERIGG SERIES A WARRANT") and (iii) that certain Series B Warrant, which upon certain circumstances may become exercisable into 1,982,759 shares of Common Stock (the "CASTLERIGG SERIES B WARRANT"). Capitalized terms not defined herein shall have the meaning as set forth in the Securities Purchase Agreement. Pursuant to the provisions of (a) Section 3(d) of the Castlerigg Note and any Notes acquired by Castlerigg after the date hereof, (b) Section 1(f)(i) of the Castlerigg Series A Warrant and any Series A Warrants acquired by Castlerigg after the date hereof, and (c) Section 1(f)(i) of the Castlerigg Series B Warrant and any Warrants acquired by Castlerigg after the date hereof, Castlerigg hereby notifies you of its election to decrease the blocker percentage specified in each such section from 4.99% (which Castlerigg and the Company hereby acknowledge as the initial "MAXIMUM PERCENTAGE" thereunder) to 1.249%, such that from and after the date hereof the Maximum Percentage shall equal 1.249%. We further hereby waive any right to increase the Maximum Percentage set forth in the Castlerigg Note, the Castlerigg Series A Warrant, the Castlerigg Series B Warrant and any other Notes or Warrants acquired by Castlerigg after the date hereof above 1.249% at any time. With respect to the Castlerigg Note, the Castlerigg Series A Warrant and the Castlerigg Series B Warrant, we understand that this change will become effective immediately upon your receipt of this letter. With respect to any Notes and/or Warrants acquired by Castlerigg after the date hereof, we understand that this change will become effective immediately upon Castlerigg's acquisition of such other Notes and/or Warrants. Very truly yours, CASTLERIGG MASTER INVESTMENTS LTD. BY: SANDELL ASSET MANAGEMENT CORP. By: /s/ Patrick T. Burke -------------------- Name: Patrick T. Burke Title: Senior Managing Director Acknowledged and agreed this ___ day of November, 2007 by: EARTH BIOFUELS, INC. By: ------------------------------- Name: Title: cc: Charles R. Gibbs, Esq. -----END PRIVACY-ENHANCED MESSAGE-----