EXHIBIT 10.1

NOTE PURCHASE AGREEMENT

DATED OCTOBER 18, 2010

AMONG

THIRD EYE CAPITAL CORPORATION,
AS AGENT,

THE PURCHASERS FROM TIME TO TIME PARTY HERETO

AND

AE ADVANCED FUELS KEYES, INC.,
AS THE COMPANY
 
 
 
 
 
 

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LIST OF EXHIBITS

Exhibit A - Form of Note
 
Exhibit B – Form of Compliance Certificate

LIST OF  SCHEDULES

Disclosure Schedules

Schedule A - Purchasers
 
Schedule B    Budget
 
Schedule C  Material Contracts
 
 
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NOTE PURCHASE AGREEMENT

THIS NOTE PURCHASE AGREEMENT (this “Agreement”) is made as of October 18, 2010
among AE ADVANCED FUELS KEYES, INC., a Delaware corporation (the “Company”),
THIRD EYE CAPITAL CORPORATION, an Ontario corporation, as agent (“Agent”) and
the PURCHASERS from time to time parties hereto.
 
The parties hereto agree as follows:
 
SECTION 1

 
DEFINITIONS
 
1.1 Definitions.  For the purposes of this Agreement, the following terms have
the meanings set forth below (such meanings to be applicable to both the
singular and plural forms of the terms defined):

“Account Control Agreement” shall mean, with respect to any deposit account,
securities account or other account of the Company, an agreement, in form and
substance satisfactory to Agent, among Agent, the Company and the financial
institution at which such account is maintained, pursuant to which, among other
things, Agent, for the benefit of the Purchasers, has “control” under the UCC
over, and otherwise has a first priority and perfected Lien on, such account and
all property from time to time on deposit or otherwise credited to such account.
 
“Additional Financing” means the additional capital required to be raised by the
Company on or prior to the purchase and sale of the Notes in connection with the
Closing in the form of Subordinated Debt, Ethanol Marketing Agreement or sale of
equity in an amount not less than $2,000,000 in cash, the equivalent value of
services, or any combination thereof, on terms acceptable to Agent in its sole
discretion.
 
“AE Biofuels” means AE Biofuels, Inc., a Nevada corporation.

“AE Biofuels Agreement” means the Note and Warrant Purchase Agreement, dated as
of May 16, 2008 among AE Biofuels, Agent and the Purchasers from time to time
party thereto, as the same has been and may hereafter be amended, modified or
restated from time to time.

“Affiliate” of any particular Person means any other Person directly or
indirectly controlling, controlled by or under common control with such
particular Person.  The term “control” means the possession, directly or
indirectly, of the power to direct the management and policies of a Person
whether through the ownership of voting securities, by contract or otherwise.
 
 
 

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“Budget” means the weekly budget for the Project prepared by the Company
attached hereto as Schedule B, together with any amendments, modifications or
updates to such budget, but only to the extent the same have been approved by
Agent.

“Business Day” means any day other than a Saturday, Sunday or public holiday
under the laws of the Toronto, Canada or the State of New York or other day on
which banking institutions are authorized or obligated to close in Toronto,
Canada or New York, New York.

“Capital Expenditures” means expenditures by a Person made for the purchase,
lease or acquisition of assets (other than current assets) required to be
capitalized in accordance with GAAP.

“Capital Stock” shall mean, as to any Person that is a corporation, the
authorized shares of such Person’s capital stock, including all classes of
common, preferred, voting and nonvoting capital stock, and, as to any Person
that is not a corporation or an individual, the partnership, membership or other
ownership interests in such Person, including, without limitation, the right to
share in profits and losses, the right to receive distributions of cash and
other Property, and the right to receive allocations of items of income, gain,
loss, deduction and credit and similar items from such Person, whether or not
such interests include voting or similar rights entitling the holder thereof to
exercise control over such Person, collectively with, in any such case, all
warrants, options and other rights to purchase or otherwise acquire, and all
other instruments convertible into or exchangeable for, any of the foregoing.

“Change in Control’’ means an event or series of events by which any of the
following occurs:
 
(a) Eric McAfee ceases to be employed as Chief Executive Officer or Chairman of
the Company;
 
(b) any Person is or becomes the beneficial owner, directly or indirectly, of
more than 50% of the total voting power of all outstanding classes of voting
capital stock of the Company;
 
(c) the adoption of a plan relating to the liquidation or dissolution of the
Company;
 
(d) on any date, a majority of the Company’s Board of Directors does not consist
of Persons (i) who were directors on the Closing Date (“Continuing Directors”)
or (ii) whose election or nomination as directors was approved by at least 2/3
of the directors then in office who are Continuing Directors or whose election
or nomination was previously so approved;
 
(e) the Company fails to own, directly or indirectly, 100% of each of the
Significant Affiliates;
 
(f) any sale of all or substantially all of the Company’s assets or common
stock; or
 
 
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(g) the execution by the Company or any of its Subsidiaries or Affiliates of any
agreement or letter of intent with respect to any proposed transaction or event
or series of transactions or events that, individually or in the aggregate, may
reasonably be expected to result in any of the events in (a) through (f) above
or the execution of any written agreement that, when fully performed by the
parties thereto, would result in any of the events in (a) through (f) above.
 
“Cilion Plant” means that certain 55 million gallon per year ethanol plant
located in Keyes, California.

“Collateral” means collectively, all real, personal or mixed property and all
types of tangible or intangible property and all other collateral and/or
security granted and/or securities pledged to Agent, any Purchaser or any other
Person pursuant to the Transaction Documents.

“Commodity Hedging Agreements” means, collectively, all net forward sale,
put/call options, spot deferred sale or other similar arrangements and
agreements entered into relating to the sale or purchase of any commodity and,
in the singular, any one of them.

“Compliance Certificate” means the compliance certificate executed by a
Responsible Officer of the Company in the form of Exhibit B hereto.

“Consultant” means NEAtech, LLC or such other consultant as the Agent may engage
on behalf of the Purchasers in connection with the Project, including without
limitation to assist the Agent and Purchasers in conducting due diligence and in
developing Milestones, to examine the Project and its specifications, the
Budget, all capital expenditures budgets and schedules, to make periodic
inspections of the Cilion Plant and the progress of the Project, and to advise
and render reports to the Agent concerning the same.

“Default Rate” means that rate of interest per annum equal to 600 basis points
per annum over the Interest Rate applicable to the Note.
 
“Dividend” means any distribution by a corporation, limited liability company or
other entity with respect to its capital stock, membership interests or other
ownership interests whether in cash, securities or other property.

“Environmental Laws” means any Law, including any common law, which relates to
or otherwise imposes liability or standards of conduct concerning discharges,
emissions, releases or threatened releases of noises, odors or any pollutants,
contaminants or hazardous or toxic wastes, substances or materials, into air,
water or groundwater, or land, or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
cleanup, transport or handling of pollutants, contaminants, or hazardous or
toxic wastes, substances or materials, including, but not limited to CERCLA as
amended, the Resource Conservation and Recovery Act of 1976, as amended, the
Toxic Substances Control Act of 1976, as amended, the Federal Water Pollution
Control Act Amendments of 1972, the Clean Water Act of 1977, as amended, the Oil
Pollution Act of 1990, as amended, any so-called “Superlien” law, and any other
similar Federal, state or local statutes.
 
 
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“Environmental Lien” means any Lien, whether recorded or unrecorded, in favor of
any Governmental Authority, relating to any liability of the Company or any of
its Subsidiaries arising under any Environmental Laws.

“EPM Shares” means 200,000 shares of Evolution Petroleum Corporation (AMEX-EPM)
owned by McAfee Capital LLC placed in escrow in accordance with the Guaranty
executed in connection with this Agreement by McAfee Capital LLC in favor of
Agent.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time in effect.
 
“Ethanol Marketing Agreement” means an agreement entered into between the
Company and a recognized buyer or distributor of ethanol, satisfactory to Agent
in its sole discretion, which provides for, inter alia, the prepayment of
ethanol produced by the Company and certain management services upon
commencement of the Lease.

“Fee Letter” means the fee letter dated October 18, 2010 from Agent to the
Company and AE Biofuels, as the same may be amended, modified or restated from
time to time.

“Free Cash Flow” means, as of any period, the Company’s net profit net of taxes
plus the respective depreciation and amortization expense, minus permitted
Capital Expenditures and permitted payments on Indebtedness.

“GAAP” means generally accepted accounting principles accepted in the United
States of America as promulgated by the Financial Accounting Standards Board, as
in effect from time to time.

“Governmental Authority(ies)” means any international, Federal, state,
interstate, provincial, local, foreign court or governmental agency, authority,
instrumentality, agency, bureau, board, commission, department or regulatory
body.

“Guaranties” mean, collectively, (i) that certain Limited Recourse Guaranty,
dated of even date herewith from McAfee Capital, LLC in favor of the Agent for
the benefit of the Purchasers and (ii) that certain Continuing and Unconditional
Guaranty dated of even date herewith from AE Biofuels in favor of the Agent for
the benefits of the Purchasers, as any of the foregoing may be amended, modified
or restated from time to time.

“Guarantee” means any guarantee (or guaranty) of the payment or performance of
any Indebtedness or other obligation and any other arrangement whereby credit is
extended to one obligor on the basis of any promise of another Person, whether
that promise is expressed in terms of an obligation to (i) pay the Indebtedness
or other liabilities of such obligor, (ii) purchase an obligation owed by such
obligor, (iii) purchase goods and services from such obligor pursuant to a
take-or-pay contract, (iv) maintain the capital, working capital, solvency or
general financial condition of such obligor, or (v) otherwise assure any
creditor of such obligor against loss (including by way of an agreement to
repurchase or reimburse), whether or not any such arrangement is listed on the
balance sheet of such other Person or referred to in a footnote thereto, but
shall not include endorsements of items for collection in the ordinary course of
business.  The amount of any Guarantee shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed or determined
amount, the maximum amount guaranteed or supported.
 
 
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“Hazardous Material” means any substances or materials that are, on the Closing
Date, regulated under the Environmental Laws.

“Indebtedness” means at a particular time, without duplication, (i) any
indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business),
(iv) any commitment by which a Person assures a creditor against loss
(including, without limitation, contingent reimbursement obligations with
respect to letters of credit), (v) any obligations for which a Person is
obligated pursuant to a Guarantee, (vi) any obligations under capitalized leases
with respect to which a Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or with respect to which obligations a Person assures a
creditor against loss, (vii) any indebtedness secured by a Lien on a Person’s
assets and (viii) any unsatisfied obligation for “withdrawal liability” to a
“multiemployer plan” as such terms are defined under ERISA.

“Investment” as applied to any Person means (i) any direct or indirect purchase
or other acquisition by such Person of any notes, obligations, instruments,
stock, securities or ownership interest (including partnership interests,
limited liability company membership interests and joint venture interests) of
any other Person or (ii) any capital contribution by such Person to any other
Person.

“IRC’ means the Internal Revenue Code of 1986, as amended, and any reference to
any particular IRC section shall be interpreted to include any revision of or
successor to that section regardless of how numbered or classified.

“IRS’’ means the United States Internal Revenue Service.

“Law” means any federal, state, local or other law, rule, regulation or
governmental requirement of any kind, and the rules, regulations, written
interpretations and orders promulgated thereunder.

“Lease” means the Lease Agreement for Keyes, California Ethanol Production
Facility with respect to the Cilion Plant to be entered into among the Company,
AE Advanced Fuels, Inc. and Cilion, Inc., as the same may be amended, modified
or restated from time to time.

“Lien” or “Liens” mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limita­tion, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company or any Significant Affiliate or
other Affiliate of the Company, or any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third party of property leased to the
Company or any of its direct or indirect Significant Affiliates under a lease
that is not in the nature of a conditional sale or title retention agreement, or
any subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
 
 
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“Material Adverse Effect” means (a) a material adverse effect upon the business,
operations, properties, assets or financial condition of the Company and its
Significant Affiliates, taken as a whole or (b) the impairment of the ability of
the Company to perform any of its material obligations under any Transaction
Document to which the Company or any Significant Affiliate or other Affiliate is
a party or of Agent’s or any Purchaser’s to enforce any Transaction Document or
collect any of the Indebtedness due Agent or any Purchaser.  In determining
whether any individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such effect, a Material
Adverse Effect shall be deemed to have occurred if the cumulative effect of such
event and all other then existing events would result in a Material Adverse
Effect.

“Material Contracts” means the agreements listed in Schedule C attached hereto
and any agreement, contract or similar instrument in which the Company or any of
its Significant Affiliates is a party or to which any of their property or
assets may be subject for which breach, non-performance, cancellation or failure
to renew could reasonably be expected to have a Material Adverse Effect.

“Milestones” means the activities to be performed by the Company in relation to
the Project, and budgets and timeframes for each of the activities, satisfactory
to the Agent and the Consultant.

“Most Recent Balance Sheet” means a true and complete copy of the balance sheets
of the Company and its Significant Affiliates as at June 30, 2010 prepared in
accordance with GAAP.

“Obligations” shall mean, without duplication, all present and future
obligations, Indebtedness and liabilities of the Company or other Person to
Agent and/or the Purchasers at any time and from time to time of every kind,
nature and description arising under this Agreement, the Notes or any other
Transaction Document, whether direct or indirect, secured or unsecured, joint
and/or several, absolute or contingent, due or to become due, matured or
unmatured, now existing or hereafter arising, contractual or tortious or
liquidated or unliquidated, including, without limitation, all interest, fees,
charges, expenses and/or amounts paid or advanced by Agent or any Purchaser to,
on behalf of or for the benefit of any such Person for any reason at any time,
obligations of performance as well as obligations of payment, and all interest,
fees and other amounts that accrue after the commencement of any insolvency
proceeding by or against any such Person or its Properties.

“Officer’s Certificate” means a certificate signed by the Company’s duly
authorized officer on behalf of the Company.

“Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L.
107-56, as amended.

“Permit” shall mean any license, lease, power, permit, franchise, certificate,
authorization or approval issued by a Governmental Authority.

“Permitted Indebtedness” means (i) any Indebtedness of the Company owing to the
Agent or any Purchasers or otherwise incurred or permitted pursuant to the terms
of this Agreement or the AE Biofuels Agreement, (ii) trade payables and other
accounts payable of the Company and its Significant Affiliates incurred in the
ordinary course of business, (iii) lease obligations and purchase money
indebtedness, (iv) Indebtedness existing on the date hereof and set forth on the
Most Recent Balance Sheet, and (v) the Subordinated Debt.
 
 
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“Permitted Liens” means:

(i) liens for taxes, assessments or governmental charges that are not yet due
and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves (in the good faith judgment of
the management of the Company) have been established in accordance with GAAP
consistently applied;

(ii) deposits or pledges made in connection with, or to secure payment of,
utilities or similar services, workers’ compensation, unemployment insurance,
old age pensions or other social security obligations;

(iii) purchase money mortgages or liens on any property purchased after the date
of this Agreement to be used by the Company in the normal course of its business
and created or incurred simultaneously with the acquisition of such property, if
such mortgages or liens are limited to the property so acquired;

(iv) interests or title of a lessor under any lease permitted by this Agreement;

(v) liens imposed by law which were incurred in the ordinary course of business,
such as carriers’, mechanics’, materialmen’s or contractors’ liens or
encumbrances or any similar lien or restriction and which (x) do not
individually or in the aggregate materially detract from the value of the
Collateral or (y) are being contested in good faith by appropriate proceedings;

(vi) leases, subleases, easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Significant Affiliates or materially detracting
from the value of the Collateral;

(vii) Liens outstanding on the date hereof (and renewals and extensions thereof)
which secure Permitted Indebtedness and which are described in the attached
“Indebtedness Schedule;” and

(viii) banker’s liens, rights of setoff and liens of securities intermediaries
with respect to deposit accounts maintained in the ordinary course of business.
 
 
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“Person” means an individual, a partnership, a corpora­tion, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.

“Program” means a project financing through or by means of the United States
Citizenship and Immigration Service EB-5 Program entered into by the Company or
any of its Affiliates, and all products and proceeds thereof.

“Project” means the repair, retrofit, and restart of the Cilion Plant.

“Project Agreement” means the Project Agreement dated December 1, 2009 among
Cilion Inc., AE Biofuels, the Company and AE Advanced Fuels, Inc., as the same
may be amended, modified or restated from time to time.

“Property” means all types of real, personal or mixed property and all types of
tangible or intangible property.

“Purchaser” means any of the Persons from time to time named on Schedule A and
their respective successors and permitted assigns, and “Purchasers” shall mean
all of them collectively.

“Release” has the meaning set forth in CERCLA.

“Responsible Officer” shall mean the chief executive officer or the president of
the Company, or any other officer having substantially the same authority and
responsibility; or, with respect to compliance with financial covenants or
delivery of financial information, the chief financial officer or the treasurer
of the Company, or any other officer having substantially the same authority and
responsibility.

“Restricted Securities means (i) the Securities issued hereunder and (ii) any
securities issued with respect to the securities referred to in clauses (i) 
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.  As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certificates for them not bearing the
Securities Act legend set forth in Section 8.3 have been delivered by the
Company in accordance with Section 5.  Whenever any particular securities cease
to be Restricted Securities, the holder thereof shall be entitled to receive
from the Company, without expense, new securities of like tenor not bearing a
Securities Act legend of the character set forth in Section 8.3.
 
 
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“Security Agreement” means any security executed by a Person in favor of Agent
or any Purchaser to secure the Indebtedness under the Notes, as the same may be
amended, modified, supplemented or restated from time to time.

“Security Documents” shall mean, collectively, all Security Agreements, the
Guaranties, all Account Control Agreements, all UCC financing statements and all
other agreements, documents and instruments that create or perfect the Liens in
the Collateral, as the same may be modified, amended or supplemented from time
to time.

“Securities” has the meaning set forth in Section 2.1 hereof.

“Securities Act” means the Securities Act of 1933, as amended, or any similar
federal law then in force.

“Securities and Exchange Commission” includes any governmental body or agency
succeeding to the functions thereof.

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended,
or any similar federal law then in force.

“Significant Affiliates” mean, collectively, AE Biofuels, Inc., a Nevada
corporation; collectively, Biofuels Marketing, Inc., a Delaware corporation;
International Biodiesel, Inc., a Nevada corporation; International Biofuels,
Ltd., a Mauritius entity; Universal Biofuels Private, Ltd., an Indian entity; AE
Biofuels Americas, Inc., a Delaware corporation; AE Biofuels Technologies, Inc.,
a Delaware corporation; AE Advanced Fuels, Inc., a Delaware corporation; AE
Advanced Fuels Keyes, Inc., a Delaware corporation, American Ethanol, Inc., a
Nevada corporation; Energy Enzymes, Inc., a Delaware corporation; Sutton
Ethanol, LLC, a Nebraska limited liability company; and Danville Ethanol, Inc.,
an Illinois corporation.

“Subordinated Debt” means any Indebtedness of the Company or any of its
Significant Affiliates that is unsecured and subordinated by written contract in
right of payment, liens, security and remedies to the Indebtedness evidenced by
the Note in form and content satisfactory to Agent in its discretion, acting
reasonably.

“Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the limited liability company, partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination
thereof.  For purposes hereof, a Person or Persons shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, part­nership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
 
 
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“Substantial Completion” means that all repair and retrofit activities of the
Cilion Plant have been substantially completed in accordance with the Budget and
the Cilion Plant has been operating at nameplate capacity for two consecutive
weeks, satisfactory to the Agent and Consultant, acting reasonably.

“Transaction Documents” means this Agreement, the Notes, the Guaranties, all
Security Documents, any environmental indemnity agreements, the Fee Letter and
all other documents executed and delivered in connection with any of the
foregoing, as the same may be amended, restated or modified from time to time.

“Wholly-Owned Subsidiary” means, with respect to any Person, a Subsidiary of
which all of the outstanding capital stock, membership interests or other
ownership interests are owned by such Person or another Wholly-Owned Subsidiary
of such Person.

1.2 Accounting Principles.  The classification, character and amount of all
assets, liabilities, capital accounts and reserves and of all items of income
and expense to be determined, and any consolidation or other accounting
computation to be made, and the interpretation of any definition containing any
financial term, pursuant to this Agreement shall be determined and made in
accordance with GAAP consistently applied, unless such principles are
inconsistent with the express requirements of this Agreement; provided that if
because of a change in GAAP after the date of this Agreement the Company would
be required to alter a previously utilized accounting principle, method or
policy in order to remain in compliance with GAAP, such determination shall
continue to be made in accordance with the Company’s previous accounting
principles, methods and policies.
 
SECTION 2
 
AUTHORIZATION AND CLOSING
 
2.1 Authorization of the Note.  The Company has authorized the issuance and sale
to Purchaser of its Senior Secured Notes in an aggregate principal amount of up
to $4,500,000, in form and substance as set forth in Exhibit A attached hereto
(collectively, if more than one, the “Notes”, and individually, the
“Note”).  The Notes are sometimes collectively referred to herein as the
“Securities.”
 
2.2 Purchase and Sale of the Note.  At the Closing (defined below), the Company
shall sell to Purchaser and, subject to the terms and conditions set forth
herein, Purchaser shall purchase from the Company one or more Notes in the
aggregate principal amount of $4,500,000.
 
2.3 The Closing.  Subject to Section 3 below, the closing of the purchase and
sale of the Notes (the “Closing”) shall take place on October 18, 2010 (the
“Closing Date”).  At the Closing, the Company shall deliver to Purchasers one or
more instruments evidencing the Notes to be purchased by Purchasers, issued in
the name of Purchaser or its nominee, upon payment of the purchase price thereof
by wire transfer of immediately available funds as directed by the Company, in
the aggregate amount equal to $4,500,000.
 
 
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SECTION 3

 
OBLIGATIONS OF THE COMPANY AT THE CLOSING
 
The obligation of any Purchaser to purchase and pay for the Securities at the
Closing is subject to the fulfillment as of the Closing of the following
conditions to Agent’s and Purchaser’s satisfaction in their sole discretion:
 
3.1 Representations and Warranties; Covenants; No Event of Default.  The
representations and warranties contained in Section 6 hereof shall be true and
correct at and as of the Closing as though then made, the Company shall have
performed all of the covenants required to be performed by it hereunder and
under the other documents, agreements and instruments executed in connection
herewith that are to be complied with or performed by the Company and/or any of
its Significant Affiliates on or prior to the Closing and there does not exist
any state of facts that would constitute an Event of Default.
 
3.2 Additional Financing.  On or prior to the Closing, the Company shall have
obtained the Additional Financing on terms acceptable to Agent in its sole
discretion.
 
3.3 Securities Law Compliance.  The Company shall have made all filings under
all applicable federal and state securities laws necessary to consummate the
issuance of the Notes pursuant to this Agreement.
 
3.4 Opinion of Counsel.  Agent shall have received from counsel for the Company
an opinion, dated the date of the Closing and in form and substance reasonably
satisfactory to Agent.
 
3.5 Closing Documents.  The Company shall have delivered or caused to be
delivered to Agent and Purchaser all of the following documents:
 
(i) One or more Notes in the aggregate principal amount on the Closing of
$4,500,000, in each case duly completed and executed by the Company;
 
(ii) the Fee Letter from Agent to the Company and AE Biofuels, duly executed by
the Company and AE Biofuels;
 
(iii) the Guaranties, duly executed by McAfee Capital LLC and AE Biofuels,
together with evidence satisfactory to Agent that the EPM Shares have been
transferred into the name of Agent and deposited into an account with Morgan
Stanley in the name of Agent and under the sole dominion and control of Agent;
 
(iv) a Security Agreement covering all assets of the Company duly executed by
the Company;
 
(v) Account Control Agreements duly executed by the Company and the depository
bank;
 
(vi) an Environmental Indemnity Agreement duly executed by the Company, AE
Biofuels and AE Advanced Fuels, Inc.;
 
(vii) a Landlord Waiver duly executed by Cilion, Inc., as lessor, and written
evidence satisfactory to Agent in its discretion, acting reasonably, that the
Lease, the Project Agreement and all other related agreements between the
Company and Cilion, Inc. are in full force and effect as of the date of this
Agreement;
 
 
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(viii) an initial inspection and due diligence report from the Consultant,
satisfactory to the Agent;
 
(ix) a copy of written notice from the California Energy Commission confirming
that the Company qualifies for grants provided under the California Producer
Incentive Program in the aggregate amount of at least $6,000,000 over two years;
 
(x) an Officer’s Certificate, dated the date of the Closing, stating that the
conditions specified in this Section 3 have been fully satisfied;
 
(xi) an Amendment No. 5 and Limited Waiver to the AE Biofuels Agreement in form
satisfactory to Agent, together with all documents required therein as Agent
shall reasonably request;
 
(xii) certified copies of the resolutions duly adopted by the Company’s and AE
Biofuels’ board of directors authorizing the execution, delivery and performance
of the Transaction Documents to which such entity is a party and each of the
other agreements contemplated hereby and thereby, the issuance and sale of the
Securities, and the consummation of all other transactions contemplated by this
Agreement, as applicable;
 
(xiii) a certificate of the secretary of the Company and AE Biofuels, as the
case may be, certifying the names and the signatures of the officers of such
entity authorized to sign this Agreement, the Notes, the Guaranties and each of
the other agreements, documents and instruments contemplated hereby to which
such entity is a party;
 
(xiv) certified copies of the Certificate of Incorporation and bylaws of the
Company as in effect at the Closing;
 
(xv) a certificate of good standing of the Company and AE Biofuels, dated not
more than ten days prior to the Closing, issued by from each such entity’s state
of incorporation or organization;
 
(xvi) copies of all third party and governmental consents, approvals and filings
required in connection with the consummation of the transactions hereunder
(including, without limitation, all blue sky law filings and waivers of all
preemptive rights (except for preemptive rights granted in the Transaction
Documents) and rights of first refusal);
 
(xvii) insurance certificates naming Agent as additional insured and first loss
payee on all property and liability insurance policies of the Company pertaining
to the Collateral;
 
(xviii) such other documents relating to the transactions contemplated by this
Agreement or any other Transaction Documents as Agent or its special counsel may
reasonably request.
 
 
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3.6 Proceedings.  All corporate and other proceedings taken or required to be
taken by the Company in connection with the transactions contemplated hereby to
be consummated at or prior to the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to Agent and its special
counsel.
 
3.7 Material Adverse Change.  (i) no material damage or destruction to any of
the Collateral or material depreciation thereof shall have occurred and (ii) no
material adverse change in the operation, financial condition or business
prospects of the Company or AE Biofuels shall have occurred.
 
3.8 Closing Fees and Expenses.  The Company shall have (i) paid to Agent and
Purchaser the fees set forth in a Fee Letter, and (ii) reimbursed Purchaser for
fees and expenses as provided in Section 8.1 hereof.
 
3.9 Compliance with Applicable Laws.  The purchase of the Notes by Purchasers
hereunder shall not be prohibited by any applicable law or governmental rule or
regulation and shall not subject any Purchaser to any penalty, liability or, in
any Purchaser’s sole judgment, other onerous condition under or pursuant to any
applicable law or governmental rule or regulation, and the purchase of the Notes
by Purchasers hereunder shall be permitted by laws, rules and regulations of the
jurisdictions and Governmental Authorities and agencies to which any Purchaser
is subject.
 
SECTION 4 
 
PAYMENT OF THE NOTES
 
4.1 Interest Rate.  The interest rate on the principal balance of the Notes
outstanding from time to time shall accrue at the rate of twelve percent (12%)
per annum or (if less) at the highest rate then permitted under applicable law
(computed on the basis of a 365-day year and the actual number of days elapsed
in any year) (the “Interest Rate”) on the unpaid principal amount of the Notes
outstanding from time to time from and including the Closing Date of the
purchase and sale of such Notes until the date paid.
 
4.2 Payment of Interest.  The Company shall pay to the holder of the Notes
accrued interest on the first Business Day of each month (each an “Interest
Payment Date”), beginning November 1, 2010, at the Interest Rate.  On the
Maturity Date (defined below) interest on the principal balance of the Note
outstanding from the immediately preceding Interest Payment Date through and
including the Maturity Date shall be payable at the Interest Rate.  Interest
shall accrue on any principal payment due under this Notes and, to the extent
permitted by applicable law, on any interest that has not been paid on the date
on which it is due and payable until such time as payment therefor is actually
delivered to the holder of the Notes.
 
4.3 Payment of Principal.  On the first Business Day of the month immediately
following the substantial completion and commencement of the Lease of the Cilion
Plant and on the first Business Day of each month thereafter, the Company shall
pay to the holder of the Notes an amount equal to the greater of (i) $200,000,
(ii) $0.05 per gallon of ethanol produced from the Cilion Plant and (iii) 50% of
the Free Cash Flow of the Company.
 
 
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4.4 Payment at Maturity.  On October 18, 2011 (the “Maturity Date”), the Company
will pay the entire then outstanding principal amount of the Notes together with
all accrued and unpaid interest thereon.
 
4.5 Optional Prepayments.  The Company may, at any time and from time to time
upon not less than 60 days’ prior written notice to Agent, prepay all or any
portion (in whole number multiples of $100,000 only) of the outstanding
principal amount of the Notes (if more than one Note is outstanding, pro rata
among the holders of the Notes on the basis of the outstanding principal amount
of the Note held by each holder).  In connection with each prepayment of
principal under the Notes, the Company shall also pay all accrued and unpaid
interest on the principal amount of the Notes being repaid.
 
4.6 Mandatory Prepayments.
 
(i) On the Maturity Date, upon a Change of Control, upon the occurrence and
during the continuation beyond all applicable grace or cure periods of an Event
of Default (as hereinafter defined) or if the Company or any Significant
Affiliate consummates project financing through or by means of the Program of
$30,000,000 or more (subject to project or Program restrictions), then the
Company shall (a) prepay all of the Notes for an amount equal to the then
outstanding principal balance plus all accrued but unpaid interest thereon, and
(b) pay in full all of the other obligations owing to Agent and Purchaser under
or in connection with this Agreement, which amount shall be calculated on the
date of prepayment and be payable in cash on demand in immediately available
funds on such date.
 
(ii) In addition to the foregoing, if the Company, whether in a single
transaction or a series of transactions: (a) receives proceeds from any
government grants and credits, including the California Energy Commission grant
provided under the California Producer Incentive Program; (b) sells or transfers
any Property (other than as permitted under Section 5.3(ii) of this Agreement);
(c) incurs any Indebtedness other than Permitted Indebtedness; (d) sells or
issues any Capital Stock (excluding sales or issuances in connection with the
Closing for the purpose of raising not less than $2,000,000 to the extent not
funded with Subordinated Debt pursuant to the Subordinated Loan Documents); or
(e) receives any property damage insurance award or any other insurance proceeds
of any kind, including, without limitation, proceeds from any life insurance or
business interruption insurance (unless reinvested in productive assets of a
kind then used or usable in the Company’s business, and, within one hundred
eighty (180) days after such occurrence, enters into a binding commitment to
make such reinvestment (which reinvestment shall be made within two hundred
seventy (270) days after such occurrence); the Company shall apply, or cause to
be applied, one hundred percent (100%) of the net proceeds thereof to the
prepayment of the Notes for an amount equal to the then outstanding principal
balance plus all accrued but unpaid interest thereon and all other obligations
owing to Agent and Purchaser under or in connection with this Agreement, which
amount shall be calculated on the date of prepayment and be payable in cash on
demand in immediately available funds on such date.

Notwithstanding anything to the contrary contained herein, all prepayments
pursuant to this Section 4.6 shall be applied in the following order of priority
to the payment of: (i) all then unpaid fees and expenses of Agent and Purchasers
under the Notes and other Transaction Documents; (ii) accrued and unpaid
interest on the Notes (in such order as Agent shall determine in its sole
discretion); and (iii) the unpaid principal balance of the Notes.
 
 
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SECTION 5

 
COVENANTS
 
5.1 Financial Reporting.
 
(i)           Financial Statements and Other Information.  The Company shall
deliver, or cause to be delivered, to Agent:
 
(a) as soon as available and in any event within ninety (90) calendar days after
the end of each fiscal year of the Company and AE Biofuels, audited consolidated
financial statements of the Company and AE Biofuels, including the notes
thereto, consisting of a consolidated balance sheet at the end of such fiscal
year and the related consolidated statements of income, retained earnings and
cash flows and owners’ equity for such fiscal year, which financial statements
shall be prepared by and accompanied by a certificate and an opinion of a
nationally recognized independent certified public accounting firm satisfactory
to Agent, and which certificate shall state that such financial statements
present fairly in all material respects the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years;
 
(b) as soon as available and in any event within fifteen (15) calendar days
after the end of each calendar month, unaudited consolidated financial
statements of the Company consisting of a balance sheet and statements of
income, retained earnings and cash flows and owners’ equity as of the end of
such calendar month, subject to normal year-end adjustments and the absence of
footnote disclosure;

(c) with each delivery of monthly and annual financial statements, a completed
Compliance Certificate certified on behalf of the Company by a Responsible
Officer;

(d) on each June 1 and December 1, updates of monthly cash flow projections and
Capital Expenditures budget for 2011 and any fiscal year thereafter that the
Notes remain unpaid;

(e) as soon as available, and in any event within fifteen (15) days after the
end of each calendar month, commencing November 2010, a monthly progress report
including, among other information, a written discussion detailing a comparison
of all operating and cost parameters on an actual versus budget basis, and a
comparison of actual progress with respect to the Project to the Budget.

(f) within 20 days of their completion, copies of any written internal studies
and reports of the Project;

(g) until Substantial Completion of the Project, a weekly variance analysis of
actual expenses versus estimated expenses contained in the Budget;

(h) within 5 days of Substantial Completion of the Project, ethanol and dried
distillers grains with solubles (DDGS) marketing agreements, satisfactory to the
Agent;

(i) as soon as available, and in any event 15 days prior to Substantial
Completion of the Project,  a natural gas supply contract satisfactory to the
Agent;
 
 
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(j) within 30 days of Substantial Completion of the Project, written risk
management policies related to corn procurement, marketing of ethanol and DDGS,
and Commodity Hedging Agreements, satisfactory to the Agent;

(k) promptly upon the request of the Agent and in any event within 15 days of
such request, detailed schedules and reports on, as applicable, aging of
accounts receivable, accounts payable, inventory, equipment purchases and
Capital Expenditures, copies of sales receipts, journals, collections, customer
and order lists, bank reconciliations and annual notice of tax assessments;

(l) promptly upon the request of the Agent and in any event with 15 days of
receipt by the Company (i) copies of any and all bids, quotations and proposals
for equipment, facilities and services in connection with the Project; (ii)
internal or third-party reports on the Project; (iii) monthly production
results, (iv) copies of reports sent to directors, (v) confirmation of existence
of insurance that complies with the requirements set out in this Agreement, and
(vi) confirmation of licences and certifications required in connection with the
Project or business of the Company;

(m) promptly upon their execution, copies of any new contract that would be
considered a Material Contract, or amendments or restatements of, or waivers or
consents under, any Material Contract;

(n) concurrently with the sending or filing thereof, copies of all proxy
statements, financial statements and reports which the Company has made
available to its shareholders, directors or other equity owners as a class or
any class or series of shareholders, directors or other equity owners as a class
or series, and copies of all regular, periodic and special reports, financial
statements or registration statements which the Company files with the
Securities and Exchange Commission, any stock exchange or any Governmental
Authority;

(o) concurrently with the sending or filing thereof, copies of all proxy
statements, financial statements and reports which the Company has made
available to its shareholders, directors or other equity owners as a class or
any class or series of shareholders, directors or other equity owners as a class
or series, and copies of all regular, periodic and special reports, financial
statements or registration statements which the Company files with the
Securities and Exchange Commission, any stock exchange or any Governmental
Authority; and

(p) such additional information, documents, statements, reports and other
materials as Agent or any Purchaser may request from time to time.

All such financial statements shall be prepared in accordance with GAAP
consistently applied with prior periods (subject, as to interim statements, to
normal year-end adjustments and the absence of footnote disclosure).
 
 
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5.2 Inspection of Property and Cilion Plant; Appraisals and Audits.  As
frequently as once per calendar month, the Company shall permit Agent, the
Consultant and/or any representatives designated by Agent or any Purchasers,
upon reasonable notice and during normal business hours, to (i) visit and
inspect any of the Properties of the Company or to inspect the Cilion Plant,
(ii) examine the corporate and financial records of the Company and its
Subsidiaries and make copies thereof or extracts therefrom and (iii) perform or
request appraisals of any of the Collateral or the Cilion Plant (which
appraisals may be performed by employees of Agent or by independent appraisers),
in each case all at the sole cost and expense of the Company.
 
5.3 Note Restrictive Covenants.  So long as all or any portion of the Notes
remains outstanding, the Company shall not:
 
(i) create, incur, assume or suffer to exist, or permit any of its Subsidiaries
to create, incur, assume or suffer to exist, any Indebtedness other than
Permitted Indebtedness;
 
(ii) directly or indirectly pledge, sell, assign, lease or otherwise dispose of,
or permit any of its Significant Affiliates to pledge, sell, assign, lease or
otherwise dispose of, in any way, any Collateral or any of its Properties,
except that: (a) the Company may sell obsolete, worn out, replaced or excess
equipment that is no longer needed in the ordinary course of the Company’s
business and (b) the Company may sell inventory and use cash in the ordinary
course of the Company’s business;
 
(iii) enter into a Commodity Hedging Agreement for speculative purposes;
 
(iv) permit any Liens on any Collateral other than Liens in favor of Agent for
the benefit of Purchasers and Permitted Liens;
 
(v) permit any Liens of any nature or kind or any other assignment of any
rights, title or interests in, over or to any government grants, credits or
programs that the Company or any Significant Affiliate may enter into with,
directly or indirectly, any Governmental Authority, including, without
limitation, the Program and the annual California Energy Commission grant
provided under the California Producer Incentive Program and any proceeds or
other rights which the Company or any Significant Affiliate may now or hereafter
acquire and that immediately upon acquiring any such property or rights, it
shall notify Agent in writing of such acquisition;
 
(vi) change or alter the use of the Company’s Property or permit the Collateral
or any of the Company’s Property to waste or permit any Collateral or any
Property of the Company or portion thereof to be leased or to assign or permit
the assignment of any of the Company’s or any Significant Affiliate’s right,
title or interest in and to any rents or profits arising, directly or
indirectly, from the Collateral or the Company’s Property;
 
(vii) directly or indirectly declare or pay any Dividends;
 
 
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(viii) directly or indirectly make, or permit the Company to directly or
indirectly redeem, purchase or make, or permit any of its Subsidiaries to
redeem, purchase or make, any payments with respect to any stock appreciation
rights, phantom stock plans or similar rights or plans or set aside funds for
any of the foregoing;
 
(ix) make any loans or advances to, or Guarantees for the benefit of, any
Person, except for (i) reasonable advances to employees and reasonable
extensions of credit to suppliers and other trade creditors, in each case only
in the ordinary course of business and consistent with past practices,
(ii) Permitted Indebtedness, (iii) Investments having a stated maturity no
greater than one year from the date the Company makes such Investment in
(1) obligations of the United States government or any agency thereof or
obligations guaranteed by the United States government, (2) certificates of
deposit of commercial banks having combined capital and surplus of at least $50
million, (3) commercial paper with a rating of at least “Prime-1” by Moody’s
Investors Service, Inc., (4) U.S. Treasury Bills subject to repurchase
agreements, (5) short-term obligations issued by or guaranteed by the U.S.
Government or an agency thereof, (6) investments in open-end diversified
investment Company of recognized financial standing investing solely in
short-term money market instruments consisting of securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, time
deposits and certificates of deposit issued by domestic banks or London branches
of domestic banks, bankers’ acceptances, repurchase agreements, high grade
commercial paper and the like, or (7) accounts, chattel paper and notes
receivable created by the Company in the ordinary course of business;
 
(x) merge or consolidate with any Person, permit any of its Significant
Affiliates to merge or consolidate with any Person, except that any Wholly-Owned
Subsidiary may be merged or consolidated with or into the Company or another
Wholly-Owned Subsidiary; or acquire, or permit any of its Significant Affiliates
to acquire, all or any substantial part of the assets or properties of any
Person; or otherwise alter, or permit any of its Significant Affiliates to
alter, its legal status;
 
(xi) liquidate, dissolve or effect a recapitalization or reorganization in any
form of transaction (including, without limitation, any reorganization after
which the Company  becomes a Subsidiary of another Person);
 
(xii) enter into, become subject to, amend, modify or waive any agreement or
instrument which by its terms would (under any circumstances) restrict (i) the
repayment of any Indebtedness evidenced by the Notes or (ii) the Company’s or
any Significant Affiliate’s right to perform the provisions of any of the
Transaction Documents or the Securities;
 
(xiii) change its fiscal year;
 
(xiv) amend the Budget;
 
(xv) amend or modify any Material Contract;
 
(xvi) prepay any principal or interest on any Indebtedness other than the
Indebtedness evidenced by the Notes;
 
 
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(xvii) pay or otherwise redeem, exchange, purchase, retire or defease any
Subordinated Debt, except for regularly scheduled payments of interest at the
non-default rate of interest on the Subordinated Debt under the Subordinated
Loan Documents so long as no Event of Default has occurred or would result
therefrom.  For the avoidance of doubt, Subordinated Debt does not include
ordinary course trade payables;
 
(xviii) issue or sell any stock or other equity interests, or rights to acquire
shares of the Capital Stock or other equity interests, of any of its Significant
Affiliates (other than AE Biofuels, Inc.) to any Person other than the Company
or a Wholly-Owned Subsidiary;
 
(xix) make any amendment to its Articles or Certificate of Incorporation, or
bylaws, as applicable, which violate or breach any of the provisions thereof or
in any manner adverse to Agent or any Purchaser;
 
(xx) enter into or permit any of its Significant Affiliates to enter into any
royalty agreements, licenses or similar agreements with Energy Enzymes, Inc. the
purpose of which is to receive royalties or similar payments; or
 
(xxi) permit SE Advanced Fuels, LLC, a California limited liability company to
at any time have any material assets or liabilities unless immediately upon
acquiring any such assets, it shall notify Agent in writing of such material
assets and shall grant to and in favor of Agent, for the benefit of the
Purchasers, a Lien on such material assets.
 
5.4 Affirmative Covenants.  The Company shall, and the Company shall cause each
of its Significant Affiliates to:
 
(a) Preservation of Existence, etc.  Cause to be done all things reasonably
necessary to maintain, preserve and renew its corporate or limited liability
company existence, rights, franchises, privileges and qualifications and all
material licenses, authorizations and permits necessary to the conduct of its
businesses, except that any Wholly-Owned Subsidiary may be merged or
consolidated with or liquidated into the Company or another Wholly-Owned
Subsidiary.
 
(b) Maintenance of Properties.  Maintain and keep its material Properties,
including without limitation all Collateral, in good repair, working order and
condition (ordinary wear, tear and obsolescence excepted), and from time to time
make all necessary or desirable repairs, renewals and replacements, so that its
businesses may be properly and advantageously conducted in all material respects
at all times.
 
(c) Payment of Taxes.  Pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon it or its income or
profits (in each case before the same becomes delinquent and before penalties
accrue thereon) and all material claims for labor, materials or supplies which
if unpaid would by law become a Lien upon any of its property, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with GAAP
consistently applied) have been established on its books with respect thereto
and such contest acts to suspend collection of same.
 
(d) Compliance with Obligations.  Comply with all other material obligations
which it incurs pursuant to any contract or agreement, whether oral or written,
express or implied, as such obligations become due, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings
and adequate reserves (as determined in accordance with GAAP consistently
applied) have been established on its books with respect thereto or except to
the extent that such failure to comply could not reasonably be expected to
result in a Material Adverse Effect.
 
 
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(e) Compliance with Laws; Permits.  Comply with all applicable laws, rules and
regulations of all Governmental Authorities, including, without limitation,
maintaining and preserving in full force and effect all Permits, the violation
of which would reasonably be expected to have a Material Adverse Effect.
 
(f) Environmental Matters.  Comply in all material respects with all
Environmental Laws and all permits, licenses or other authorizations issued
thereunder; respond immediately to any unlawful Release or threatened Release of
any Hazardous Material, substance or waste in a manner which complies in all
material respects with all applicable Environmental Laws and reasonably
mitigates any risk to human health or the environment: and provide such
documents or information, or conduct at its own cost such studies or
assessments, relating to matters arising under the Environmental Laws as any
Purchaser may reasonably request.
 
(g) Maintenance of Insurance: Payment of Proceeds.  Apply for and continue in
force with good and responsible insurance Company adequate insurance covering
risks of such types and covering casualties, risks and contingencies of such
types and in such amounts as are customary for prudent corporations of similar
size engaged in similar lines of business, but in no event less than such
amounts that were maintained as of the Closing.
 
(h) Credit Policy and Accounts Receivable. Maintain, at all times, written
credit policies consistent with good business practices, adhere to such policies
and collect, and cause each of the Significant Affiliates to collect, accounts
receivable in the ordinary course of business.
 
(i) Provision of Staff. The Company shall ensure that there are sufficient
competent technical and management employees or contractors engaged in
connection with the Project to enable the achievement of the Milestones.
 
(j) Notice of Litigation or Liens. Give notice to the Agent immediately upon
becoming aware of any Lien that is not a Permitted Lien or the commencement of
any material action, litigation, proceeding, arbitration, investigation,
grievance or dispute affecting the Company or Significant Affiliate, the
Project, or the Cilion Plant.
 
(k) Notice of Termination. Give notice to the Agent immediately upon becoming
aware of the resignation or termination of any key employee or contractor. For
the purposes of this Section, Michael Rosa, Eric McAfee, and any other Person
identified as such by the Agent in writing to the Company from time to time,
shall each be considered a key employee.
 
(l) Perfection and Protection of Security. At the request of the Agent, grant to
the Agent, for the benefit of the Purchasers, security interests, assignments,
mortgages, charges, and pledges in such property and undertaking of the Company
that is not subject to a valid and perfected first ranking charge or security
interest (subject only to Permitted Liens) in each relevant jurisdiction as
determined by the Agent and deliver opinions in form and substance satisfactory
to the Agent thereon with respect to such matters as the Agent may request. The
Company shall also perform, execute and deliver all acts, agreements and other
documents as may be reasonably requested by the Agent at any time to register,
file, signify, publish, perfect, maintain, protect, and enforce the Security or
grant a security interest on its property including, without limitation, (i)
executing, recording and filing of the Security Documents and financing or
continuation statements in connection therewith, in form and substance
reasonably satisfactory to the Agent, (ii) delivering to the Agent the originals
of all share certificates, instruments, documents and chattel paper and all
other Collateral of which the Agent reasonably determines it should have
physical possession in order to perfect and protect the Notes, duly endorsed or
assigned to the Agent, (iii) delivering to the Agent warehouse receipts covering
any portion of the Collateral located in warehouses and for which warehouse
receipts are listed, (iv) placing notations on its books of account to disclose
the Notes, (v) delivering to the Agent all letters of credit on which the
Company is named beneficiary, (vi) obtaining subordination agreements,
acknowledgments or other documents from third parties in order to ensure that
the Notes constitute first priority Liens on the Collateral (subject only to
Permitted Liens), and (vii) taking such other steps as are deemed reasonably
necessary by the Agent to maintain the Notes and the first ranking priority
thereof (subject only to Permitted Liens).
 
 
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(m) Books and Records.  Maintain proper books of record and account which
present fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with GAAP consistently
applied.
 
(n) Note Proceeds. Use the proceeds from the purchase and sale of the Notes
solely to finance the Project in accordance with the Budget; provided, that up
to $1,000,000 of such proceeds may be used by the Company to reimburse AE
Biofuels for expenses incurred in connection with the Project.
 
(o) Substantial Completion at Cilion Plant.  Immediately upon satisfaction of
all repairs and other activities to obtain Substantial Completion of the Cilion
Plant, provide to Agent evidence of such Substantial Completion as acknowledged
by the owner of the Cilion Plant, Cilion, Inc., including, without limitation,
evidence in writing that the Lease and all documents executed or delivered in
connection therewith is in full force and effect, in form and content
satisfactory to Agent and Purchasers acting reasonably.
 
(p) EB-5 Program and other Programs. Cause the proceeds of all government
grants, credits or programs that the Company or any Significant Affiliate may
enter into with, directly or indirectly, any Governmental Authority, including,
without limitation, the Program and the annual California Energy Commission
grant provided under the California Producer Incentive Program to be applied to
the repayment of the Notes in accordance with Section 4.6 of this Agreement.
 
5.5 Financial Covenants.  So long as any portion of the Notes remains
outstanding, the Company shall, and shall cause each of its Significant
Affiliates to comply with the following financial covenants:
 
(a) Minimum Quarterly Free Cash Flow.  The Company shall at all times maintain
Free Cash Flow for the periods indicated below in the minimum amounts indicated
below for such periods:

Quarterly Period
Minimum Free Cash Flow Amount
Quarter ending March 31, 2011
$1,000,000
Quarter ending June 30, 2011
$2,000,000
Quarter ending September 30, 2011 and each quarter thereafter
$1,400,000

 
 
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(b) Cilion Plant Minimum Quarterly Production.  Minimum quarterly production of
ethanol at the Cilion Plant for any quarter shall not be less than the amounts
indicated below for the quarterly periods indicated below:
 
Quarterly Period
Cilion Plant Minimum Quarterly Production (in millions of gallons)
Quarter ending March 31, 2011
5
Quarter ending September 30, 2011 and each quarter thereafter
10

(c) Maximum Capital Expenditures. In any fiscal year after Substantial
Completion of the Project, the Company shall limit Capital Expenditures to
$500,000, in the aggregate.

5.6 Compliance with Agreements.  The Company shall perform and observe all of
its obligations, and shall cause each of its Significant Affiliates and all
other obligors to perform and observe all of such party’s respective obligations
(i) to each holder of the Notes and (ii) under each of the agreements
contemplated hereby.
 
5.7 Use of Proceeds.  The Company shall use the proceeds from the sale of the
Notes to be used in accordance with the terms of this Agreement and shall not
and shall not permit any of its Subsidiaries to, use any proceeds from the sale
of the Notes hereunder, directly or indirectly, for the purposes of purchasing
or carrying any “margin securities” within the meaning of Regulation T
promulgated by the Board of Governors of the Federal Reserve Board or for the
purpose of arranging for the extension of credit secured, directly or
indirectly, in whole or in part by collateral that includes any “margin
securities.”
 
SECTION 6 
 
REPRESENTATIONS AND WARRANTIES
 
As a material inducement to Agent and Purchaser to enter into this Agreement and
for Purchaser to purchase the Note, the Company hereby represents and warrants
that except as set forth in the Disclosure Schedule to be made part of this
Agreement upon delivery thereof to Purchaser on or prior to the Closing
(“Disclosure Schedule”) which exceptions shall be deemed part of the
representations and warranties made hereunder, the Company represents and
warrants to Agent and Purchaser the following as of the date of this Agreement
(which representations and warranties shall survive the execution and delivery
of this Agreement):
 
6.1 Organization, Corporate Power and Licenses.  The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business in every jurisdiction in which
its ownership of property or conduct of business requires it to qualify, except
for jurisdictions in which the failure to so qualify has not had and could not
have a Material Adverse Effect.  The Company possesses all requisite corporate
power and authority and all material licenses, permits and authorizations
necessary to own and operate its properties, to carry on its businesses as now
conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement.  The copies of the Company’s
charter documents and bylaws or applicable constituent documents which have been
furnished to Agent’s special counsel reflect all amendments made thereto at any
time prior to the date of this Agreement and are correct and complete.
 
 
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6.2 Capitalization and Related Matters.
 
(i) Capitalization.
 
 The authorized capital stock of the Company, immediately prior to the Closing,
is as set forth on the Disclosure Schedule.  Except as set forth on the
Disclosure Schedule, as of the date hereof and immediately prior to the
Closing,  neither the Company nor any of its Subsidiaries has outstanding any
stock or securities convertible or exchangeable for any shares of its capital
stock or containing any profit participation features, or any rights or options
to subscribe for or to purchase its capital stock or any stock or securities
convertible into or exchangeable for its capital stock or any stock appreciation
rights or phantom stock plans.  As of the Closing, neither the Company nor any
of its Subsidiaries shall be subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital stock or
any warrants, options or other rights to acquire its capital stock, except as
set forth on the Capitalization Schedule.  All of the outstanding shares of the
Company’s capital stock have been validly issued, are fully paid and
nonassessable.
 
(ii) There are no statutory or contractual preemptive rights or rights of
refusal with respect to the issuance of the Securities hereunder.  The Company
has not violated any applicable federal or state securities laws in connection
with the offer, sale or issuance of any of its capital stock, and the offer,
sale and issuance of the Securities hereunder.
 
(iii) To the Company’s knowledge, there are no agreements between the Company’s
equity holders with respect to the voting or transfer of such Company’s capital
stock or with respect to any other aspect of such Company’s affairs, except for
the Company’s Certificate of Incorporation and bylaws.
 
6.3 Subsidiaries; Investments.  The Disclosure Schedule correctly sets forth the
name of each Subsidiary of the Company and the jurisdiction of its organization
or incorporation. Each Subsidiary of the Company is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization or incorporation, possesses all requisite limited liability company
or corporate, as the case may be, power and authority and all material licenses,
permits and authorizations necessary to own its properties and to carry on its
businesses as now being conducted and as presently proposed to be conducted and
is qualified to do business in every jurisdiction in which its ownership of
property or the conduct of business requires it to qualify, except for
jurisdictions in which the failure to so qualify has not had and could not have
a Material Adverse Effect. All of the outstanding membership interests or shares
of capital stock, as the case may be, of each Subsidiary of the Company are
validly issued, fully paid and nonassessable, and all such membership interests
or shares are owned by the Company or another Subsidiary of the Company free and
clear of any Lien other than Permitted Liens and not subject to any option or
right to purchase any such membership interests. Except as set forth on the
Disclosure Schedule, neither the Company nor any Subsidiary of such Company owns
or holds the right to acquire any membership interests or shares of stock or any
other security or interest in any other Person.
 
 
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6.4 Authorization; No Breach.  The execution, delivery and performance of each
of the Transaction Documents and all other agreements and instruments
contemplated hereby to which the Company is a party have been duly authorized by
the Company.  Each of the Transaction Documents and all other agreements and
instruments contemplated hereby to which the Company is a party each constitutes
a valid and binding obligation of the Company enforceable in accordance with its
terms, except (i) to the extent rights to indemnity and contribution may be
limited by applicable state or federal securities laws or other public policy
underlying such laws, (ii) enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors’ rights generally and (iii) enforceability may
be limited by general principles of equity.  The execution and delivery by the
Company of each of the Transaction Documents and all other agreements and
instruments contemplated hereby to which the Company is a party, the offering,
sale and issuance of the Securities hereunder, and the consummation of the
transactions contemplated thereby and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company, as applicable, do not and
shall not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any Lien, security interest, charge or encumbrance upon the Company’s capital
stock or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of, or
(vi) require any authorization, consent, approval, exemption or other action by
or notice or declaration to, or filing with, any court or administrative or
governmental body or agency pursuant to, the articles of incorporation, bylaws
or other charter documents of the Company, or any law, statute, rule or
regulation to which the Company or any of its Significant Affiliates is subject
(including, without limitation, any usury laws applicable to the Note), or any
material agreement or instrument or any order, judgment or decree to which
Company or any of its Significant Affiliates is subject.
 
6.5 Absence of Undisclosed Liabilities.  Neither the Company nor any of its
Subsidiaries have any material obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to the
Company or any of its Subsidiaries, whether due or to become due and regardless
of when asserted) arising out of transactions entered into at or prior to the
Closing, or any action or inaction at or prior to the Closing, or any state of
facts existing at or prior to the Closing except for (i) liabilities and
obligations shown on the Most Recent Balance Sheet, (ii) liabilities under any
agreements, contracts, commitments, licenses or leases which have arisen prior
to the date of the Most Recent Balance Sheet and which are not required under
GAAP to be reflected in a balance sheet or the notes thereto, (iii) liabilities
incurred in the ordinary course of business since the Most Recent Balance Sheet
and/pr (iv) other liabilities that are, individually or in the aggregate,
immaterial.
 
6.6 No Material Adverse Change.  Since June 30, 2010, there has been no material
adverse change in the financial condition, operating results, assets,
liabilities, operations, business, employee relations or customer or supplier
relations of the Company and its Significant Affiliates taken as a whole.
 
6.7 Material Contracts. Each of the Company and its Significant Affiliates are
in material compliance with all Material Contracts and none of the Company nor
any of its Significant Affiliates, or the to the best of the Company’s
knowledge, any other party to any Material Contracts, has defaulted under any of
the Material Contracts. No event has occurred which, with the giving of notice,
lapse of time or both, would constitute a default under, or in respect of, any
Material Contract.  There is no material dispute regarding any Material
Contract.
 
6.8 Assets.  The Company and its Significant Affiliates have good and marketable
title to, or a valid leasehold interest in, and valid title to, all Collateral
owned by them, located on their premises or shown on their most recent balance
sheet delivered to Agent or any Purchaser or acquired thereafter, free and clear
of all Liens except Permitted Liens.
 
 
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6.9 Litigation, Etc.  Except as set forth on the Disclosure Schedule, there are
no actions, suits, proceedings, orders, investigations or claims pending or, to
the Company’s knowledge, threatened against or affecting the Company or any of
its Significant Affiliates (or to the Company’s knowledge, pending or threatened
against or affecting any of the officers, directors or employees of the Company
and its Significant Affiliates with respect to their respective businesses or
proposed business activities), or pending or threatened by the Company or any of
its Significant Affiliates against any third party, at law or in equity, or
before or by any Governmental Authority (including, without limitation, any
actions, suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement).  Neither the Company nor any of its Significant
Affiliates is subject to any judgment, order or decree of any court or other
Governmental Authority.
 
6.10 Brokers.  Except as set forth on the Disclosure Schedule there are no
claims for brokerage commissions, finders’ fees or similar compensation in
connection with the transactions contemplated by this Agreement.  The Company
shall pay, and hold Agent and Purchaser harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys’ fees and
out-of-pocket expenses) arising in connection with any such claim.
 
6.11 Governmental Consent, etc.  No permit, consent, approval or authorization
of, or declaration to or filing with, any Governmental Authority is required in
connection with the execu­tion, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Company of any other transactions contemplated hereby or thereby, except as
may have been made or obtained prior to the date of this Agreement or obtained
after the Closing in accordance with the terms of the Transaction Documents.
 
6.12 Insurance.  Neither the Company nor any of its Significant Affiliates is in
default with respect to its obligations under any insurance policy maintained by
it, and neither the Company nor any of its Significant Affiliates has been
denied coverage.  The insurance coverage of the Company and its Subsidiaries is
customary for prudent corporations of similar size engaged in similar lines of
business.
 
6.13 Employees.  The Company is not aware that any executive or key employee of
such Company or any of its Significant Affiliates or any group of employees of
such Company or any of its Significant Affiliates has any plans to terminate
employment with such Company or any of its Significant Affiliates.  The Company
and its Significant Affiliates has complied in all material respects with all
laws relating to the employment of labor (including, without limitation,
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes), and the Company
is not aware that it or any of its Significant Affiliates has any material labor
relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances).  Neither the Company, its Significant Affiliates nor, to the
Company’s knowledge, any of its employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company and its Significant Affiliates, except for agreements
between the Company and its present and former employees.
 
6.14 Compliance with Laws.  Neither the Company nor any of its Significant
Affiliates has violated any law or any governmental regulation or requirement
which violation has had or would reasonably be expected to have a Material
Adverse Effect, and neither the Company nor any of its Significant Affiliates
has received notice of any such violation.
 
 
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6.15 Environmental and Safety Matters.  To the Company’s knowledge: (a) the
Company and its Significant Affiliates have in all material respects complied
with and are currently in com­pliance in all material respects with all
Environmental Laws, and neither the Company nor its Significant Affiliates have
received any oral or written notice, report or information regarding any
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
or any corrective, investigatory response or remedial obligations arising under
Environmental Laws which relate to the Company or its Significant Affiliates or
any of their properties or facilities. (b) Without limiting the generality of
the fore­going, the Company and its Significant Affiliates have obtained and
complied in all material respects, and are currently in compliance in all
material respects, with all permits, licenses and other authorizations that may
be required pursuant to any Environmental Laws for the occupancy of their
properties or facilities or the operation of their businesses.  (c) No
Environmental Lien has attached to any property owned, leased or operated by the
Company or any of its Significant Affiliates.
 
6.16 Affiliated Transactions.  No officer, director, stockholder or Affiliate of
the Company or any of its Significant Affiliates or any individual known to be
related by blood, marriage or adoption to any such individual or any entity in
which any such Person or individual owns any beneficial interest, is a party to
any agreement, contract, commitment, transaction or arrangement with the Company
or any of its Significant Affiliates or has any material interest in any
material property used by the Company or any of its Significant Affiliates.
 
6.17 Solvency, etc.  The Company is not “insolvent,” nor will the Company’s
incurrence of obligations, direct or contingent, to repay the Indebtedness
evidenced by the Note render the Company or any Significant Affiliate
“insolvent.”
 
6.18 Investment Company.  The Company is not an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company,” as such terms are defined in the Investment Company Act of
1940, as amended.  The purchase of the Securities, the application of the
proceeds and repayment thereof by the Company and the consummation of the
transactions contemplated by this Agreement will not violate any provision of
such act or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
 
6.19 Margin Regulations.  The Company does not own any “margin security”, as the
term is defined in Regulation U of the Federal Reserve Board, and the proceeds
of the Note will be used only for the purposes contemplated hereunder.  None of
the proceeds of the Note will be used, directly or indirectly, for the purpose
of purchasing or carrying any margin security, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the securities
purchased under this Agreement to be considered “purpose credit” within the
meaning of Regulations T, U or X of the Federal Reserve Board.  The purchase of
the Note will not constitute a violation of such Regulations T, U or X.
 
6.20 Permits.  Each Credit Party is in compliance with, and has, all Permits
necessary or required by applicable law or Governmental Authorities for the
operation of the Project and its business as presently conducted and as proposed
to be conducted, and for the execution, delivery and performance by, and
enforcement against, such Credit Party of each Loan Document and Related
Document, except where noncompliance, violation or lack thereof reasonably could
not be expected to result in, either individually or in the aggregate, a
Material Adverse Effect.
 
 
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6.21 Disclosure.  Neither this Agreement nor any of the exhibits, schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to Agent or any Purchaser by or on behalf of the Company or any
Significant Affiliate with respect to the transactions contemplated hereby
contain any untrue statement of a material fact or omit a material fact
necessary to make each statement contained herein or therein not
misleading.  There is no fact which the Company or any Significant Affiliate has
not disclosed to Agent or Purchaser in writing and of which any of its officers,
directors or executive employees is aware (other than general economic
conditions) and which has had or would reasonably be expected to have a Material
Adverse Effect.  In furtherance, and not in limitation, of the foregoing, (i)
the initial inspection and due diligence report prepared by the Consultant, a
copy of which was delivered to the Company and the Agent prior to the date
hereof, does not contain any untrue statement of a material fact in light of the
circumstances in which such information was provided and (ii) the Budget and
Milestones of the Project have been prepared and provided by the Company in good
faith and based on reasonable assumptions.
 
SECTION 7 
 
EVENTS OF DEFAULT
 
7.1 Events of Default.  An Event of Default (each, an “Event of Default”) shall
be deemed to have occurred if:
 
(i) the Company fails to pay when due and payable (whether at maturity or
otherwise) the full amount of interest then accrued on the Notes or the full
amount of any principal payment (together with any applicable premium) on the
Notes or any other Obligations when due and payable;
 
(ii) The Company or any Significant Affiliate fail to perform or observe any
affirmative covenant contained herein, in the Notes, any Security Documents, or
any other agreement between or among Agent and/or any Purchaser and the Company
and/or such Significant Affiliate and such failure continues for a period of 10
days; or the Company or any Significant Affiliate breaches or fails to abide by
any negative covenant contained herein, in the Notes, or any other agreement
between or among Agent, any Purchaser and the Company and/or such Significant
Affiliate;
 
(iii) any representation, warranty or information contained herein or required
to be furnished to any holder of the Notes pursuant to or in connection with
this Agreement, or any writing furnished by the Company to any holder of the
Notes, is false or misleading in any material respect on the date made or
furnished;
 
(iv) The Company or any of its Significant Affiliates makes an assignment for
the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment, decree or injunction is
entered adjudicating the Company or any of its Significant Affiliates bankrupt
or insolvent; or an order, judgment, decree or injunction is entered against the
Company or any of its Significant Affiliates requiring the dissolution or split
up of the Company or any of its Significant Affiliates or preventing the Company
or any of its Significant Affiliates from conducting all or any material part of
its or their business; or any order for relief with respect to the Company or
any of its Significant Affiliates is entered under federal bankruptcy laws; or
the Company or any of its Significant Affiliates petitions or applies to any
tribunal for the appointment of a custodian, trustee, assignee, receiver,
liquidator or sequestrator (or similar official) of the Company or any of its
Significant Affiliates, of any substantial part of the assets of the Company or
any of its Significant Affiliates, or for the winding up or liquidation of the
Company’s or any of its Significant Affiliates’ affairs, or commences any
proceeding (other than a proceeding for the voluntary liquidation and
dissolution of any of the Company’s Significant Affiliates) relating to the
Company or any of its Significant Affiliates under any bankruptcy
reorganization, arrangement, insolvency, readjustment of debt, dissolution,
liquidation or similar law of any jurisdiction now or hereafter in effect; or
any such petition or application is filed, or any such proceeding is commenced,
against the Company or any of its Significant Affiliates and either (i)  the
Company or any of its Significant Affiliates by any act indicates its approval
thereof, consent thereto or acquiescence therein or (ii) such petition,
application or proceeding is not dismissed within 45 days;
 
(v) a final judgment in excess of $250,000 is rendered against the Company or
any of its Significant Affiliates and, within 60 days after entry thereof, such
judgment is not discharged in full or fully bonded over or execution thereof
stayed pending appeal, or within 60 days after the expiration of any such stay,
such judgment is not discharged in full;
 
 
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(vi) the Company or any of its Significant Affiliates defaults (including,
without limitation, defaults under the AE Biofuels Agreement) (i) in payment of
any amounts under any indenture, loan agreement or other instrument under which
any evidence of Indebtedness of the Company or any of its Significant Affiliates
exceeding $100,000 in principal amount has been or hereafter may be issued,
(ii) in compliance with the terms, covenants or other provisions of any such
indenture, loan agreement or other instrument and the effect of such default in
compliance is to permit the acceleration of the stated maturity of such
Indebtedness (whether or not actually accelerated) or (in the case of demand
obligations) results in demand for payment of such Indebtedness;
 
(vii) the Company or any of its Significant Affiliates shall default in the
performance or observance of any provision of any agreement or commitment (other
than those relating to Indebtedness) and such default has or might have a
Material Adverse Effect;
 
(viii) the Company or any of its Significant Affiliates shall default under any
Material Contract beyond all applicable grace or cure periods;
 
(ix) a Change in Control shall occur;
 
(x) any of this Agreement, the Notes, the Fee Letter, the Guaranties, the
Security Agreement, the Security Documents or any other Transaction Documents
shall cease to be in full force and effect or declared to be null and void by a
court of competent jurisdiction or there shall occur any default or event of
default under any of the Transaction Documents;
 
(xi) AE Biofuels or McAfee Capital LLC shall fail to observe or perform any
covenant, condition or agreement in their respective Guaranties or the
Guaranties shall be revoked by AE Biofuels or McAfee Capital LLC or the EPM
Shares shall cease to be held by Agent (at no fault of Agent) and maintained in
accordance with the McAfee Capital LLC Guaranty; or
 
(xii) any default or event of default shall occur under the AE Biofuels
Agreement or any of the Transaction Documents defined therein beyond all
applicable grace or cure periods.
 
The foregoing shall constitute Events of Default whatever the reason or cause
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
 
 
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7.2 Consequences of Events of Default.
 
(i) Upon the occurrence and during the continuance of an Event of Default, the
interest rate on the Notes shall increase to the Default Rate.  Any increase of
the interest rate resulting from the operation of this subparagraph shall
terminate as of the close of business on the date on which no Events of Default
exist (subject to subsequent increases pursuant to this subparagraph).
 
(ii) Upon the occurrence and during the continuance of an Event of Default,
Agent may (and at the request of Purchaser shall) (i) declare all Indebtedness
evidenced by the Notes to be immediately due and payable (including all accrued
and unpaid interest and any interest at the Default Rate), whereupon all such
Indebtedness shall become due and payable, without presentment, demand, protest
or further notice of any kind, all of which are expressly waived by the Company,
and (ii) exercise all rights and remedies available under this Agreement, any
other Transaction Documents and applicable law and Agent or Purchaser may
proceed to protect and enforce its rights by an action at law, suit in equity or
other appropriate proceeding, whether for the specific performance of any
agreement contained in any Transaction Document, or for an injunction against a
violation of any of the terms thereof, or in aid of the exercise of any power
granted thereby or by law or otherwise. The Company acknowledges, and the
parties hereto agree, that each holder of a Note has the right to maintain its
investment in the Note free from repayment by the Company (except as herein
specifically provided for) and that the provision for payment of an interest
premium by the Company in the event that the Note is prepaid or are accelerated
as a result of an Event of Default, is intended to provide compensation for the
deprivation of such right under such circumstances.
 
7.3 Right of Setoff.  To the extent permitted by law,
 
(i) in the case an Event of Default shall occur and be continuing or shall
exist, Purchaser shall have the right, in addition to all other rights and
remedies available to it, without notice to the Company, to setoff against and
to appropriate and apply to the unpaid balance of the Note, all accrued interest
thereon and all other obligations of the Company hereunder and under the Notes,
any debt owing to, and any other funds held in any manner for the account of the
Company by Agent or any Purchaser, including, without limitation, all funds in
all deposit accounts (general or special) now or hereafter maintained by the
Company for its own account with Agent or any Purchaser and Agent and each
Purchaser are hereby granted a security interest in and lien on all such debts
(including, without limitation, all such deposit accounts) for such purpose; and
 
(ii) such right shall exist whether or not Agent or any Purchaser shall have
made any demand under this Agreement, the Notes or any other Transaction
Document and whether or not the Notes and such other Obligations are matured or
unmatured.
 
 
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SECTION 8
 
MISCELLANEOUS
 
8.1 Expenses.  The Company shall pay, and hold Agent and each Purchaser and all
other holders of the Notes harmless against liability for the payment of, and
reimburse on demand as and when incurred from and against, (i) (x) all
reasonable costs and expenses incurred by each of them in connection with their
due diligence review of the Company and its Subsidiaries, (y) all reasonable
costs and expenses incurred by each of them in connection with the preparation,
negotiation, execution and interpretation of this Agreement, the Notes, the
Security Documents, the other Transaction Documents and the other agreements
contemplated hereby and thereby, and the consummation of all of the transactions
contemplated hereby and thereby (including, without limitation, all fees and
expenses of environmental consultants and accountants and all reasonable fees
and expenses of legal counsel) and (z) all UCC searches, title searches,
recording, registration and filing fees, stamp and other taxes which may be
payable in respect of the execution and delivery of this Agreement or the
issuance, delivery or acquisition of the Notes or any of the Transaction
Documents, which costs and expenses shall be payable at the Closing; (ii) all
reasonable fees and expenses (including, without limitation, all reasonable fees
and expenses of legal counsel) incurred with respect to any amendments or
waivers (whether or not the same become effective) under or in respect of each
of the Transaction Documents and the other agreements and instruments
contemplated hereby and thereby, (including, without limitation, in connection
with any proposed merger, sale or recapitalization of any of the Company or its
Significant Affiliates) and (iii) the reasonable fees and expenses (including,
without limitation, all reasonable fees and expenses of legal counsel)  incurred
with respect to the interpretation and enforcement of the rights granted under
each of the Transaction Documents and the agreements or instrument contemplated
hereby and thereby (including costs of collection). If the Company fails to pay
when due any amounts due Agent and Purchaser or fail to comply with any of its
obligations pursuant to this Agreement or any other agreement, document or
instrument executed or delivered in connection herewith, the Company shall, upon
demand by Agent and Purchaser, pay to Purchaser such further amounts as shall be
sufficient to cover the cost and expense (including, but not limited to
reasonable attorneys’ fees) incurred by or on behalf of Agent or Purchaser in
collecting all such amounts due or in otherwise enforcing Agent’s and
Purchaser’s rights and remedies hereunder.  The Company also agrees to pay to
Agent and Purchaser all costs and expenses incurred by them, including
reasonable compensation to its attorneys for all services rendered, in
connection with the investigation of any Event of Default and enforcement of its
rights hereunder or under any Transaction Documents.
 
8.2 Remedies.  Each holder of the Notes shall have all rights and remedies set
forth in this Agreement, the Notes and the other Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights such holders have under any
law or in equity.  No remedy hereunder or thereunder conferred is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or
thereunder or now or hereafter existing at law or in equity or by statute or
otherwise.  Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law.
 
8.3 Purchaser’s Representations.  Purchaser hereby represents and warrants to
the Company that:
 
(a) It is not a “U.S. Person” (as defined in Rule 902 of Regulation S under the
Securities Act) and it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public offering of the
Securities in any country or jurisdiction where action for that purpose is
required.  It is not acquiring the Securities for the account or benefit of any
U.S. persons except in accordance with exemption from registration requirements
of the Securities Act or in a transaction not subject thereto.
 
(b) It is not acquiring the Securities with a view to any distribution thereof
that would violate the Securities Act or the securities laws of any state of the
United States of America or any other applicable jurisdiction.
 
 
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(c) It (A) agrees that it will not offer, sell or otherwise transfer any of the
Securities nor, unless in compliance with the Securities Act, engage in hedging
transactions involving such securities, on or prior to (x) the date which is 40
days (in the case of the Notes) after the later of the date of the commencement
of the offering and the date of original issuance (or of any predecessor of any
Securities proposed to be transferred by the Purchaser) and (y) such later date,
if any, as may be required by applicable law, except (a) to the Company, (b)
pursuant to a registration statement that has been declared effective under the
Securities Act, (c) for so long as any Securities are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person it reasonably
believes is a “qualified institutional buyer” as defined in Rule 144A that
purchases for its own account or for the account of another qualified
institutional buyer to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales to Persons who are not
“U.S. Persons” (within the meaning of Regulation S) that occur outside the
United States of America within the meaning of Regulation S or (e) pursuant to
any other available exemption from the registration requirements of the
Securities Act, and (B) agrees that it will give to each person to whom such
Securities are transferred a notice substantially to the effect of this
paragraph.
 
(d) The Purchaser acknowledges that the Securities are “restricted securities”
as defined in Rule 144 under the Securities Act and subject to resale
restrictions during the period set forth in Rule 144.
 
(e) No form of “directed selling efforts” (as defined in Rule 902 of Regulation
S under the Securities Act), general solicitation or general advertising in
violation of the Securities Act has been or will be used nor will any offers by
means of any directed selling efforts in the United States of America be made by
the Purchaser or any of its representatives in connection with the offer and
sale of any of the Notes.
 
(f) The Securities to be acquired by the Purchaser will be acquired for
investment for the Purchaser’s own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and the Purchaser
has no present intention of selling, granting any participation in, or otherwise
distributing the same.  The Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any Person, directly or indirectly,
to sell, transfer, distribute or grant participations to such Person or to any
third Person, with respect to any of the Securities.
 
(g) The execution, delivery and performance by it of this Agreement and the
consummation by it of the transactions contemplated by the Transaction
Documents, including, without limitation, the purchase of the Securities: (a) is
within its power and authority and has been duly authorized by all necessary
action; (b) does not contravene the terms of its constitutional documents or any
amendment thereof; and (c) shall not violate, constitute a breach of or a
default (with the passage of time or otherwise) under, or require the consent of
any person or a Governmental Authority (other than consents already obtained
which are in full force and effect) under or pursuant to (i) any bond,
debenture, note or other evidence of indebtedness, indenture, mortgage, deed of
trust, lease or any other agreement or instrument to which the Purchaser is a
party or by which the Purchaser or its property is bound, or (ii) any statute,
rule, regulation, law or ordinance, or any judgment, decree or order applicable
to the Purchaser or any of its properties, other than in each of clause (i) and
(ii) such violations, breaches or defaults that would not, individually or in
aggregate, have a Material Adverse Effect on the ability of the Purchaser to
perform its obligations hereunder.
 
(h) This Agreement and the other Transaction Documents to which it is a party
have been duly executed and delivered by it and assuming that it is binding on
and enforceable against the Company, this Agreement constitutes the Purchaser’s
legal, valid and binding obligation enforceable against the Purchaser in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
 
 
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Each certificate or instrument representing Restricted Securities shall be
imprinted with a legend in substantially the following form:
 
 “The securities represented by this certificate may not be offered, sold,
pledged or otherwise transferred or assigned to any US Person and every
purchaser of the securities represented by this certificate will be required to
certify that it is not a US Person and is not acquiring the securities for the
account or benefit of any US Person.

The securities represented by this certificate were originally issued on October
18, 2010 and have not been registered under the Securities Act of 1933, as
amended.  The transfer of the securities represented by this certificate is
subject to the conditions specified in the Note Purchase Agreement, dated as of
October 18, 2010 and as amended and modified from time to time, between the
Company named therein and certain investors, and the Company reserves the right
to refuse the transfer of such securities until such conditions have been
fulfilled with respect to such transfer.  A copy of such conditions shall be
furnished by the Company to the holder hereof upon written request and without
charge.”

8.4 Amendments and Waivers.  Except as otherwise expressly provided herein, the
provisions of this Agreement, the Notes or any other Transaction Document may be
amended or waived and the Company may take any action herein prohibited, or omit
to perform any act herein required to be performed by it, only if the Company
has obtained the written consent of Agent and the holders of a majority of the
outstanding principal amount of the Notes; provided that no such action shall
change (i) the rate at which or the manner in which interest accrues on the
Notes or the time at which such interest becomes payable or (ii) any provision
relating to the scheduled payments or prepayments of principal on the Notes,
without the written consent of the holders of the outstanding principal amount
of the Notes. No other course of dealing or any delay in exercising any rights
hereunder or under the Notes or otherwise shall operate as a waiver of any
rights of any such holders.
 
8.5 Survival of Agreement; Indemnities.  All covenants, agreements,
representations and warranties contained in this Agreement or the Note or made
in writing by the Company in connection herewith or therewith shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, regardless of any investigation made by Agent
or Purchaser or on their behalf.  In addition, notwithstanding the repayment of
all amounts pursuant to this Agreement or the Note, the obligations of the
Company pursuant to Sections 8.1, 8.14, 8.17, 8.18 and 8.19 shall survive the
repayment of the Note, and the obligations of the Company pursuant to
Sections 8.1, 8.17, 8.18 and 8.19 shall survive indefinitely.
 
8.6 No Setoffs, etc.  All payments hereunder and under the Note shall be made by
the Company without setoff, offset, deduction or counterclaim, free and clear of
all taxes, levies, imports, duties, fees and charges, and without any
withholding, restriction or conditions imposed by any Governmental
Authority.  If the Company shall be required by any law to deduct, setoff or
withhold any amount from or in respect of any payment to Agent or Purchaser
hereunder or under the Notes, then the amount so payable to Agent or Purchaser
shall be increased as may be necessary so that, after making all required
deductions, setoffs and withholdings, Agent or Purchaser shall receive an amount
equal to the sum it would have received had no such deductions, setoffs or
withholding been made.
 
8.7 Successors and Assigns; Purchaser’s Syndication Rights.  Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether or not so expressed or not; provided that the Company shall not assign
any of its rights or obligations under this Agreement or the Notes without the
prior written consent of Purchasers or any holder of the Notes; provided
further, that Purchaser may sell, transfer, assign or syndicate all or any
portion of the Notes to a non-US Person without the prior written consent of the
Company and Purchaser shall not be restricted in any way from selling all or a
portion of the Notes.  In addition, and whether or not any express assignment
has been made, the provisions of this Agreement which are for Purchaser’s
benefit as a purchaser or holder of the Notes are also for the benefit of, and
enforceable by, any subsequent holder of such Notes.
 
 
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8.8 Aggregation.  For purposes of this Agreement and any registration agreement,
all holdings of any portion of the Notes by Persons who are Affiliates of each
other shall be aggregated for purposes of meeting any threshold tests under this
Agreement and any such registration agreement.
 
8.9 Severability.  Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
 
8.10 Counterparts.  This Agreement may be executed in two or more counterparts,
any one of which need not contain the signatures of more than one party, but all
such counterparts taken together shall constitute one and the same Agreement.
 
8.11 Descriptive Headings; Interpretation.  The descriptive headings of this
Agreement, the Notes and the other Transaction Documents are inserted for
convenience only and do not constitute a substantive part of this
Agreement.  The use of the word “including” in this Agreement or the Notes shall
be by way of example rather than by limitation.
 
8.12 Governing Law.  THIS AGREEMENT AND THE NOTE AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTE HAVE BEEN DELIVERED IN AND IN
ALL RESPECTS, EXCEPT AS SET FORTH BELOW, SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
SECTION 5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT
EXCLUDING TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ALL OTHER CONFLICTS
OF LAWS PRINCIPLES AND CHOICE OF LAW RULES OF THE STATE OF NEW YORK.
 
8.13 Notices.  All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (i) when delivered personally to
the recipient, (ii) sent to the recipient by reputable overnight courier service
(charges prepaid), (iii) mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid or (iv) sent via facsimile or
electronic transmission, in each case upon telephone or further electronic
communication from the recipient acknowledging receipt (whether automatic or
manual from recipient), as applicable.  Such notices, demands and other
communications shall be sent to Agent and to the Company at the address
indicated below:
 
 
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To the Company:   AE Advanced Fuels Keyes, Inc.     20400 Stevens Creek
Boulevard, Suite 700     Cupertino, California  95014     Attention:  Mr. Eric
A. McAfee, Chairman and Chief Executive Officer               To Agent:   Third
Eye Capital Corporation     Brookfield Place, TD Canada Trust Tower     161 Bay
Street, Suite 3820     Toronto, Canada  ON M5J 2S1     Attention:  Mr. Arif N.
Bhalwani, Managing Director

 
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

8.14 [Intentionally Omitted].
 
8.15 No Strict Construction.  The parties hereto have participated jointly in
the negotiation and drafting of this Agreement.  In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
 
8.16 Complete Agreement.  This Agreement, those documents expressly referred to
herein and other documents of even date herewith, embody the complete agreement
and understanding among the parties and supersede any prior agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
 
8.17 Indemnification.  In consideration of Agent’s and any Purchaser’s execution
and delivery of this Agreement and any Purchaser’s acquiring the Notes hereunder
and in addition to all of the Company’ other obligations under this Agreement
and in addition to all other rights and remedies available at law or in equity,
the Company and its Significant Affiliates shall defend, protect and indemnify
Agent, each Purchaser and each other holder of the Notes and all of their
respective officers, directors, managers, members, shareholders, partners,
affiliates, employees, agents, attorneys, representatives, successors and
assigns (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”),
and save and hold each of them harmless against, and pay on behalf of or
reimburse such party on demand as and when incurred from and against any and all
actions, causes of action, suits, claims, losses (including diminutions in value
and consequential damages), costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee is
a party to the action for which indemnification hereunder is sought), including
reasonable attorneys’ fees and disbursements interest and penalties and all
amounts paid in investigation, defense or settlement of any of the foregoing and
claims relating to any of the foregoing (the “Indemnified Liabilities”) incurred
by the Indemnitees or any of them as a result of, or arising out of, or relating
to (i) any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Notes or (ii) the
execution, delivery, performance or enforcement of this Agreement, the
Transaction Documents and any other instrument, document or agreement executed
pursuant hereto or thereto by any of the Indemnitees, except and solely to the
extent that any such Indemnified Liabilities are caused by the particular
Indemnitee’s gross negli­gence or willful misconduct.  To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
 
 
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8.18 Payment Set Aside.  To the extent that the Company makes a payment or
payments to Agent or Purchaser hereunder or under the Note or Agent or Purchaser
enforce any rights or exercise any right of setoff hereunder or thereunder, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
 
8.19 Jurisdiction and Venue.  Each of the parties (i) submits to the
jurisdiction of any state or Federal court sitting in New York, New York in any
legal suit, action or proceeding arising out of or relating to this Agreement or
the Notes, (ii) agrees that all claims in respect of the action or proceeding
may be heard or determined in any such court and (iii) agrees not to bring any
action or proceeding arising out of or relating to this Agreement or the Notes
in any other court.  Each of the parties waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought and waives any
bond, surety or other security that might be required of any other party with
respect thereto.  Any party may make service on any other party by sending or
delivering a copy of the process to the party to be served at the address and in
the manner provided for the giving of notices in Section 8.13.  Each party
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law.  Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of Agent or any Purchaser
to bring proceedings against the Company in the courts of any other jurisdiction
and the exclusive choice of forum set forth in this Section shall not be deemed
to preclude the enforcement by Agent, any Purchaser or any holder of the Notes
of any judgment obtained in any other forum or the taking by Agent, any
Purchaser or any holder of the Notes of any action to enforce the same in any
other appropriate jurisdiction, and the Company hereby waives the right to
collaterally attack any such judgment or action.
 
8.20 Acknowledgements.  The Company hereby acknowledges that:
 
(a) Neither Agent nor Purchaser have any fiduciary relationship with or duty to
the Company arising out of or in connection with this Agreement or any of the
other Transaction Documents, and the relationship between Agent and Purchaser,
on one hand, and the Company, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
 
(b) no joint venture is created hereby or by the other Transaction Documents or
otherwise exists by virtue of the transactions contemplated hereby.
 
8.21 Waiver of Right to Jury Trial.  THE COMPANY, AGENT EACH PURCHASER AND EACH
HOLDER OF THE NOTES HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS AGREEMENT OR THE NOTES OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.  THE COMPANY AGREES THAT THIS
SECTION 8.21 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND
ACKNOWLEDGES THAT PURCHASERS WOULD NOT PURCHASE THE NOTES HEREUNDER IF THIS
SECTION 8.21 WERE NOT PART OF THIS AGREEMENT.
 
 
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8.22 Agent.  Purchaser hereby designates and appoints Third Eye Capital
Corporation as the administrative agent, payment agent and collateral agent
under this Agreement and the other Transaction Documents and Purchaser hereby
irrevocably authorizes Third Eye Capital Corporation, as Agent for Purchaser, to
take such action or to refrain from taking such action on its behalf under the
provisions of this Agreement and the other Transaction Documents and to exercise
such powers and perform such duties as are delegated to Agent by the terms of
this Agreement and the other Transaction Documents, together with such other
powers as are reasonably incidental thereto.  Agent may perform any of its
duties hereunder, or under the Transaction Documents, by or through its agents,
employees or sub-agents. Agent shall have no duties, obligations or
responsibilities except those expressly set forth in this Agreement or in the
other Transaction Documents.  Purchaser shall make its own independent
investigation of the financial condition and affairs of the Company in
connection with the extension of credit hereunder.  Neither Agent nor any of its
officers, directors, managers, members, equity owners, employees, attorneys or
agents shall be liable to Purchaser for any action lawfully taken or omitted by
them hereunder or under any of the other Transaction Documents, or in connection
herewith or therewith; provided that the foregoing shall not prevent Agent from
being be liable to the extent of its own gross negligence or willful misconduct
as determined by a court of competent jurisdiction on a final and nonappealable
basis. Agent may resign from the performance of all or part of its functions and
duties hereunder at any time by giving at least thirty (30) calendar days’ prior
written notice to Purchaser.  Such resignation shall take effect upon the
acceptance by a successor Agent of appointment.  Upon the acceptance of any
appointment as Agent under the Transaction Documents by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and, upon the
earlier of such acceptance or the effective date of the retiring Agent’s
resignation, the retiring Agent shall be discharged from its duties and
obligations under the Transaction Documents, provided that any indemnity rights
or other rights in favor of such retiring Agent shall continue after and survive
such resignation and succession.   Purchaser agrees that any action taken by
Agent in accordance with the provisions of this Agreement or of the other
Transaction Documents relating to the Collateral, and the exercise by Agent of
the powers set forth herein or therein, together with such other powers as are
reasonably incidental thereto, shall be authorized and binding upon Purchaser
and Agent.
 
8.23 Judgment Currency.  If a judgment or order is rendered by any court,
tribunal or arbitration panel for the payment of any amounts owing to Agent or
any Purchasers under this Agreement, the Notes or any Transaction Documents or
for the payment of damages in respect of any breach of this Agreement or any
other Transaction Documents or any provision or term thereof and such judgment
or order is expressed in currency ("Judgment Currency") other than United States
dollars, the Company agrees notwithstanding any such judgment or order, to
indemnify and hold harmless Agent and each Purchaser against any deficiency in
United States dollars in the amounts received by Agent or any Purchaser arising
or resulting from any variation between (i) the rate of exchange at which United
States dollars are converted into Judgment Currency for the purpose of the
judgment or order, and (ii) the rate of exchange at which Agent or any Purchaser
is able to purchase United States dollars with the amount of Judgment Currency
actually received by or any Purchaser.  The above indemnity constitutes a
separate and independent obligation of the Company from its other obligations
under this Agreement and the other Transaction Documents and applies
irrespective of any indulgence granted by Agent or any Purchaser.  No proof or
evidence of any actual loss shall be required to be provided by Agent or any
Purchaser.  The term "rate of exchange" shall include any premiums, taxes and
costs of exchange payable in connection with the purchase of or conversion into
the relevant currency and shall be determined by Agent or any Purchaser in
accordance with its normal procedures.
 
8.24 USA Patriot Act Notice.  Federal law requires all financial institutions to
obtain, verify and record information that identifies each person who opens an
account or obtains a loan.  Agent or Purchaser may ask for the Company’s legal
name, address, tax ID number or social security number and other identifying
information.  Agent or Purchaser may also ask for additional information or
documentation or take other actions reasonably necessary to verify the identity
of the Company, any Significant Affiliate, guarantors or other related persons.
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
 

COMPANY:
AE ADVANCED FUELS KEYES, INC.
         
 
By:
/s/ Eric A. McAfee        Its: Chief Executive Officer  

 
 
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AGENT:
THIRD EYE CAPITAL CORPORATION
            By: Arif N. Bhalwani       Its: Managing Director    

 
 
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PURCHASER:
THIRD EYE CAPITAL CREDIT OPPORTUNITIES FUND – INSIGHT FUND
         
 
By:
Third Eye Capital Credit Opportunities Fund, its Managing General Partner
            By: /s/ Robert Denormandie       Its: Manager             By: /s/
Richard Goddard       Its: Manager  

 
 
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PURCHASER:
SPROTT PRIVATE CREDIT FUND L.P.
            By: Sprott Genpar Ltd., its General Partner             By: /s/
Kristen McTaggart       Its: Director  

 
 
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EXHIBIT A

FORM OF NOTE

THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OR ASSIGNED
TO ANY US PERSON AND EVERY PURCHASER OR SUBSEQUENT HOLDER OF THIS NOTE WILL BE
REQUIRED TO CERTIFY THAT IT IS NOT A US PERSON AND IS NOT ACQUIRING THE
SECURITIES FOR THE ACCOUNT OR BENEFIT OF ANY US PERSON.
 
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY OTHER APPLICABLE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY OTHER APPLICABLE
SECURITIES LAW, INCLUDING STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION
THEREFROM, OR IN A TRANSACTION NOT SUBJECT THERETO.
 
NOTE
 

$______________________________ ____________, 2010

 
FOR VALUE RECEIVED, the undersigned, AE ADVANCED FUELS KEYES, INC., a Delaware
corporation (the “Company”), hereby unconditionally promises to pay to
________________________________________ (the “Note Holder”), or registered
assigns, at the office of Third Eye Capital Corporation, Brookfield Place, TD
Canada Trust Tower, 161 Bay Street, Suite 3820, Toronto, Canada  ON M5J 2S1 or
at such other address as may be specified by the Note Holder, in lawful money of
the United States of America and in immediately available funds,
$___________________ (_________________ Million and 00/100 Dollars)
in installments in the amounts and on the dates as set forth in the Note
Purchase Agreement (defined below).   The Company agrees to pay interest in like
money at such office on the unpaid principal amount hereof from time to time
outstanding at the interest rates and on the dates specified in the Note
Purchase Agreement.
 
This Note (a) is one of the Notes referred to in the Note Purchase Agreement
dated as of October 18, 2010 (as amended, supplemented or otherwise modified
from time to time, the “Note Purchase Agreement”), among the Company, Third Eye
Capital Corporation, as Agent, and the Note Holder, (b) is subject to the
provisions of the Note Purchase Agreement and (c) is subject to mandatory
prepayment in whole or in part as provided in the Note Purchase Agreement and
the other Transaction Documents.  Reference is hereby made to the Transaction
Documents for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security, the terms and
conditions upon which the security interests were granted and the rights of the
holder of this Note in respect thereof.
 
 
A-1

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Upon the occurrence and during the continuance of any one or more Events of
Default, all amounts then remaining unpaid on this Note shall become, or may be
declared to be, immediately due and payable, all as provided in the Note
Purchase Agreement.
 
All parties now and hereafter liable with respect to this Note, whether maker,
principal, surety, guarantor, endorser or otherwise, hereby waive presentment,
demand, protest and all other notices of any kind.
 
Unless otherwise defined herein, terms defined in the Note Purchase Agreement
and used herein shall have the meanings given to them in the Note Purchase
Agreement.
 
This Note is hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to the holder of
this Note for the use, forbearance or detention of the money advanced or to be
advanced hereunder exceed the highest lawful rate permissible under the laws of
the State of New York.  If, from any circumstances whatsoever, fulfillment of
any provision of this Note shall, at the time performance of such provisions
shall be due, involve the payment of interest in excess of that authorized by
law, the obligation to be fulfilled shall be reduced to the limit so authorized
by law, and if, from any circumstances, the holder of this Note shall ever
receive as interest an amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of the indebtedness evidenced hereby and not to the
payment of interest.
 
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS NOTE HAVE
BEEN DELIVERED IN AND IN ALL RESPECTS, EXCEPT AS SET FORTH BELOW, SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW, BUT EXCLUDING TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, ALL OTHER CONFLICTS OF LAWS PRINCIPLES AND CHOICE OF LAW RULES
OF THE STATE OF NEW YORK.
 
 
A-2

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IN WITNESS WHEREOF, the undersigned authorized officer of the Company has
executed this Note as of the date first set forth above.
 

  AE ADVANCED FUELS KEYES, INC.          
 
By:
/s/        Name        Title