AMENDMENT AND EXCHANGE AGREEMENT

  EXECUTION COPY
AMENDMENT AND EXCHANGE AGREEMENT   AMENDMENT AND EXCHANGE AGREEMENT (the "Agreement"), dated as of December __, 2008, by and between Earth Biofuels, Inc., a Delaware corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the "Company") and Castlerigg PNG Investments LLC (the "Investor").   WHEREAS:   A.           On June 25, 2008, the Company and certain investors (including the Investor) (the "Investors") each entered into an Amendment and Exchange Agreement (collectively, the "Existing Amendment and Exchange Agreements"), pursuant to which the Company issued to each of the Investors, in exchange for the cancellation of certain securities and other obligations of the Company, (a) Amended and Restated Senior Secured Convertible Exchangeable Notes (the "Existing Series A Notes"), convertible into shares (the "Existing Series A Conversion Shares") of common stock of the Company, par value $0.001 per share (the "Common Stock"), in accordance with the terms thereof and exchangeable into common stock, par value $0.001 per share (the "PNG Common Stock") of PNG Ventures, Inc., a Nevada corporation ("PNG") in accordance with the terms thereof and (b) Senior Secured Convertible Exchangeable Notes (the "Existing Series B Notes", and together with the Existing Series A Notes, the "Existing Notes"), convertible into shares (the "Existing Series B Conversion Shares" and together with the Existing Series A Conversion Shares, the "Existing Conversion Shares") of Common Stock, in accordance with the terms thereof and exchangeable into PNG Common Stock, in accordance with the terms thereof.   B.           On or prior to the date hereof, pursuant to (i) an Exchange Notice (as defined in the Existing Series A Notes) to the Company electing to exchange $55,000,000 of the Existing Series A Note of the Investor for 5,500,000 shares of PNG Common Stock (the "Initial Exchange Notice") and (ii) a subsequent Exchange Notice electing to exchange an additional $1,000,000 of the Existing Series A Note of the Investor for 100,000 shares of PNG Common Stock (the "Additional Exchange Notice", and together with the Initial Exchange Notice, the "Exchange Notices"), the Investor exchanged $56,000,000 of the Existing Series A Note of the Investor for 5,600,000 shares of PNG Common Stock.   C.           The Company and the Investor desire to enter into this Agreement (the date the transactions described herein are consummated, the “Exchange Date”), pursuant to which, among other things, (i) the Company and the Investor shall (A) exchange a portion of the outstanding principal amount of such Existing Series A Note for a senior secured convertible note in the aggregate principal amount of $13,235,000 in form attached hereto as Exhibit A (the "Series C Note"), which shall be convertible into Common Stock (as converted, the "Series C Conversion Shares"), in accordance with the terms thereof and (B) decrease the remaining outstanding principal amount of the Investor's Existing Series A Note to $5,000,000 and (ii) the Company and the Investor shall amend and restate the Investor's Existing Series B Note for a senior secured convertible note in the aggregate principal amount of $1,765,000 in the form attached hereto as Exhibit B (the "Series D Notes", and together with the Series C Notes, the "December Amendment Notes"), which shall be convertible into Common Stock (as converted,  
   

 
the "Series D Conversion Shares" and together with the Series C Conversion Shares, the "December Amendment Conversion Shares ").   D.           The Series C Note will rank pari passu with the Existing Series A Notes that remain outstanding after the Closing Date (as defined below) and the Series D Note will rank pari passu with the Existing Series B Notes that remain outstanding after the Closing Date.  The Existing Series B Notes and Series D Notes will rank junior to the Series C Note and the Existing Series A Notes and senior to all outstanding and future indebtedness of the Company, other than Permitted Senior Indebtedness (as defined in the Series C Note), and each of the Existing Notes and the December Amendment Notes will be secured by a perfected security interest in certain of the assets of the Company and the stock, equity interests and assets of certain of the Company's subsidiaries as evidenced by the Security Documents (as defined in the Existing Amendment and Exchange Agreements) and that certain Reaffirmation Agreement in the form attached hereto as Exhibit C (the "Reaffirmation Agreement").   E.           As a closing condition to the transactions contemplated hereby, each of the other holders of Existing Notes (the "Other Investors"), which Other Investors, together with the Investor, hold, in the aggregate, 100% of the principal amount of the Existing Notes outstanding as of the date hereof, are each executing a consent to the transaction contemplated hereby in the form attached hereto as Exhibit D (collectively, the "Consents") and shall be entitled to enter into agreements identical to this Agreement (the "Other Agreements", and together with this Agreement, the "Amendments") (other than proportional changes in the numbers reflecting the (i) different principal amount of such Other Investor's Series C Note and (ii) different principal amount of such Other Investor's Series D Note being issued to such Other Investor ("Proportionate Changes")).   F.           The amendment of the Existing Notes is being made in reliance upon the exemption from registration provided by Section 3(a)(9) of the 1933 Act.   NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the Company and the Investor hereby agree as follows:  

  (a)           Exchange Notice Transactions.  Prior to the Closing Date, the Company consummated the transactions contemplated by the Exchange Notices and a stock certificate for 5,600,000 shares of PNG Common Stock in the name of the Investor was delivered to the Investor.   (b)           Exchange and Amendment and Restatement.  Subject to satisfaction (or waiver) of the conditions set forth in Sections 5 and 6 below, at the closing contemplated by this Agreement (the "Closing"), (i) the instrument representing the Investor's Existing Series B Note shall be cancelled upon the issuance and delivery to the Investor of the Series D Note as provided in clause (iv) below, (ii) the Company shall exchange a portion of the outstanding principal amount of the Investor’s Existing Series A Note for a Series C Note in a principal amount of $13,235,000, (iii) the remaining principal amount of the Investor’s Existing  
   

 
Series A Note shall be decreased to $5,000,000 and (iv) the Company shall amend and restate the Investor’s Existing Series B Note by issuing and delivering to the Investor a Series D Note in a principal amount equal to $1,765,000.   (c)           Amendment of Investor's Existing Series A Note.  The second sentence of Section 12(a) of the Investor's Existing Series A Note shall be amended and restated in its entirety as follows:   "The portion of this Note subject to redemption at a price equal to the Principal amount pursuant to this Section 12 shall be redeemed by the Company or such Subsidiary, as applicable, in cash in an amount equal to the product of the Holder Pro Rata Percentage and the Mandatory Prepayment Amount (the "Mandatory Prepayment Price"); provided, however, that if such amount is greater than the sum of (i) the outstanding Principal amount of this Note plus (ii) the amount of any accrued but unpaid Interest on such Conversion Amount being redeemed and accrued and unpaid Late Charges, if any, with respect to such Conversion Amount and Interest (the “Outstanding Amount”) on the Mandatory Prepayment Date, then the Mandatory Prepayment Price shall equal the Outstanding Amount."   The foregoing amendment to the Investor's Existing Series A Note shall become effective at such time as the Company receives Consents, duly executed by the other holders of the Existing Series A Notes constituting the Required Holders (as defined in the Existing Series A Notes), containing identical amendments to Section 12(a) of such holders' Existing Series A Notes.   (d)           Ratifications.   (i)           Existing Transaction Documents.  Each of the Existing Transaction Documents and the Existing Amendment and Exchange Agreement is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except as otherwise amended hereby or in accordance herewith.   (ii)           Security Documents.  The Security Documents which assign or pledge to the holders of Existing Notes, or Sandell Asset Management Corp, as collateral agent, or to grant to the holders of Existing Notes, or Castlerigg PNG Investments LLC, as collateral agent, a security interest in or lien on, any collateral as security for the obligations of the Company from time to time existing in respect of the Existing Notes, such pledge, assignment and/or grant of the security interest or lien are hereby ratified and confirmed in all respects, and shall apply with respect to the obligations under the December Amendment Notes and the Existing Notes.   (e)           Closing Date.  The date and time of the Closing (the "Closing Date") shall be 10:00 a.m., New York Time, on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 5 and 6 below (or such other time and date as is mutually agreed to by the Company and the Investor).  The  
   

 
Closing shall occur on the Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.   (f)           Delivery.  On the Closing Date, (i) the Company shall issue and deliver to the Investor the Investor's December Amendment Notes, duly executed on behalf of the Company and registered in the name of the Investor, and (ii) the Investor's Existing Notes shall be cancelled.  The Investor hereby covenants to use its reasonable best efforts to deliver its cancelled Existing Notes to the Company or its agents no later than thirty (30) days after the Closing Date.   (g)           Holding Period.   (i)           For the purposes of Rule 144, the Company acknowledges that the holding period of the December Amendment Notes (including the corresponding December Amendment Conversion Shares) may be tacked onto the holding period of the Existing Notes (including the corresponding Existing Conversion Shares) and the Company agrees not to take a position contrary to this Section 1(e).  The Company agrees to take all actions, including, without limitation, the issuance by its legal counsel of any necessary legal opinions, necessary to issue the December Amendment Conversion Shares without restriction and not containing any restrictive legend without the need for any action by the Investor.   (ii)           So long as the Investor owns any December Amendment Notes or December Amendment Conversion Shares (collectively the "December Amendment Securities") or any capital stock of the Company issued or issuable with respect to the December Amendment Securities as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on conversions of the December Amendment Notes (the "Registrable Securities"), with a view to making available to the Investor the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to:   (1)          make and keep public information available, as those terms are understood and defined in Rule 144;   (2)          file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and   (3)          furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual report of the Company and such other reports and documents so filed by the Company (but  
   

 
only if such reports are not publicly available on the EDGAR system), and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration.   (h)           Disclosure of Transactions and Other Material Information.  On or before 8:30 a.m., New York City time, on the first Business Day following the date of this Agreement, the Company shall issue a press release and file a Current Report on Form 8-K describing the terms of the transactions contemplated by this Agreement in the form required by the 1934 Act and attaching the material Transaction Documents not previously filed (including, without limitation, this Agreement (and all schedules to this Agreement), the Reaffirmation Agreement and the form of the December Amendment Notes) (including all attachments, the "8-K Filing").  From and after the filing of the 8-K Filing with the SEC, the Investor shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing.  The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide the Investor with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the express written consent of the Investor or as may be required under the terms of the Transaction Documents.  If the Investor has, or believes it has, received any such material, nonpublic information regarding the Company or any of its Subsidiaries, it shall provide the Company with written notice thereof.  The Company shall, within five (5) Trading Days (as defined in the December Amendment Note) of receipt of such notice, make public disclosure of such material, nonpublic information.  In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, the Investor shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents.  The Investor shall not have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents for any such disclosure.  Subject to the foregoing, neither the Company, its Subsidiaries nor the Investor shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Investor, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) the Investor shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).  Without the prior written consent of the Investor, neither the Company nor any of its Subsidiaries or affiliates shall disclose the name of the Investor in any filing, announcement, release or otherwise, unless such disclosure is required by law, regulation or the Principal Market.  
   

 
2.           MANDATORY CONVERSION RIGHT.   The Investor and the Company agree that, with respect to the Investor’s Existing Series A Note, the Company shall have the following right of Mandatory Conversion.  Capitalized terms used and not otherwise defined in this Section 2 shall have the meanings ascribed to them in the Investor’s Existing Series A Note:
(a)           Mandatory Conversion.  The Company shall have the right to require the Investor to convert all, or any portion, of the Conversion Amount then remaining under its Existing Series A Note, provided there has been no Equity Conditions Failure (as defined below), into fully paid, validly issued and nonassessable shares of Common Stock in accordance with this Section 2 at the Mandatory Conversion Rate (as defined below) as of the Mandatory Conversion Date (as defined below) with respect to the Conversion Amount (a "Mandatory Conversion").  The Company may exercise its right to require conversion under this Section 2 by delivering a written notice thereof by facsimile and overnight courier the Investor (the "Mandatory Conversion Notice" and the date the Investor receives such notice by facsimile is referred to as the "Mandatory Conversi