EXHIBIT 10.3

 
AMENDMENT NO. 1 TO PROJECT AGREEMENT
FOR
KEYES, CALIFORNIA
ETHANOL PRODUCTION FACILITY

This Amendment No. 1 to Project Agreement (“Amendment”) is entered into as of
this 29th day of October, 2010, by and between Cilion, Inc., a Delaware
corporation (hereinafter “Landlord”), AE Advanced Fuels Keyes, Inc., a Delaware
corporation (hereinafter “Project Company” or “Tenant”) and AE Advanced Fuels,
Inc., a Delaware corporation (“Parent “Sub”), each of which are wholly-owned
subsidiaries of AE Biofuels, Inc., a Nevada corporation (“Parent”).
 
RECITALS
 
A.           Landlord, Tenant and Parent entered into a Project Agreement dated
December 1, 2010 (the “Project Agreement”).
 
B.           Landlord, Tenant and Parent entered into a Lease Agreement dated
December 1, 2010 (the “Lease Agreement”), which was made a part of the Project
Agreement.
 
C.           In accordance with the Project Agreement, Parent (on behalf of
Tenant) has agreed to complete certain Repair and Retrofit Activities with
respect to the Keyes Plant.
 
D.           In order to finance the Repair and Retrofit Activities, Project
Company will need to consummate a senior debt financing in the principal amount
of four million five hundred thousand dollars ($4,500,000) with Third Eye
Capital Corporation or its affiliates (the “Third Party Financing”) and it is a
condition to the effectiveness of this Amendment, among other conditions set
forth herein, that such Third Party Financing is consummated, and Project
Company shall have received the proceeds therefrom, on or prior to October 29,
2010.
 
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and
other good and valuable consideration, the receipt of which is hereby
acknowledged by each party, the parties hereby agree to the amendment of the
Project Agreement as follows:
 
FINANCING OF THE PROJECT COMPANY
 
Section 3.5 shall be added to the Project Agreement as follows:
 
“3.5          Acknowledgement of Disbursement of $500,000 of Praj Funds.  The
Landlord and Tenant hereby acknowledge the allocation and disbursement of the
first $500,000 of Praj Funds as follows:
 
a.           $170,000 to be paid to the Landlord for reimbursement of insurance
and other Keyes Plant-related expenses, which reimbursement shall be paid to
Landlord on or prior to October 29, 2010;
 
 
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b.           $330,000 for insurance and plant personnel costs to be paid to
tenant.”
 
TERM AND TERMINATION
 
Section 12.3 shall be restated in full as follows:
 
“12.3        Substantial Completion.  Owner may terminate this Agreement
immediately by providing written notice to AE in the event that Substantial
Completion has not occurred on or prior to January 31, 2011.”
 
PAYMENT OF VENDORS
 
A new Section 5.9 shall be added to the Project Agreement as follows:
 

 
“5.9 Payment of Vendors.  Project Company shall pay all vendors who are
performing repair and retrofit activities for the Keyes Plant within two weeks
after the services are performed, and Project Company shall provide Landlord on
a monthly basis a report indicating all invoices received for such repair and
retrofit activities as well as dates when payments are made, together with
evidence of such payment as Landlord may request from time to time.
 
WAIVER OF DEFAULT
 
Upon: (i) the payment to Landlord of $170,000 as reimbursement of insurance and
other Keyes Plant-related expenses on or prior to October 29, 2010, and (ii) the
payment to Seabourn Industrial of $82,000 and the release of the mechanic lien
on the Keyes Plant on or prior to November 1, 2010, then Landlord hereby
acknowledges that the defaults set forth in that certain letter dated July 27,
2010 and attached hereto shall have been cured.  Except as expressly provided
herein, nothing contained herein shall be construed as a waiver by Landlord of
any covenant or provision of the Lease Agreement, the Project Agreement, or of
any other contract or instrument among the parties hereto, and the failure of
Landlord at any time or times hereafter to require strict performance by the
Tenant, Parent-Sub or Parent of any provision thereof shall not waive, affect or
diminish any right of Landlord to thereafter demand strict compliance
therewith.  Landlord hereby reserve all rights granted under the Project
Agreement and any other contract or instrument between the Landlord and the
Tenant, Parent-Sub and Parent.”
 
 
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CONDITION OF EFFECTIVENESS
 
This Amendment shall become effective only upon satisfaction of the following
conditions on or prior to October 29, 2010.  If any of the conditions set forth
herein are not satisfied in full by October 29, 2010, this Amendment shall be
null and void and no longer in force or effect.
 
1.  The Third Party Financing shall have been consummated and the Project
Company shall have received the proceeds from such financing;
 
2.  Project Company shall have paid Landlord the sum of $170,000 as
reimbursement of insurance and other Keyes Plant-related expenses;
 
3.  The conditions to the effectiveness of Amendment No. 1 to the Lease
Agreement dated as of the date hereof shall have been satisfied in full.
 
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to
Project Agreement the day and year first above written.
 
 

LANDLORD:        
Cilion, Inc.,
a Delaware corporation
       
By:
/s/ Kevin H. Kruse     Name: Kevin H. Kruse     Title: Chairman and Chief
Executive Officer  

 

TENANT:        
AE Advanced Fuels Keyes, Inc.,
a Delaware corporation
       
By:
/s/ Eric A. McAfee     Name: Eric A. McAfee     Title: Chairman and Chief
Executive Officer

PARENT:        
AE Biofuels, Inc.,
a Nevada corporation
       
By:
/s/ Eric A. McAfee     Name: Eric A. McAfee     Title: Chairman and Chief
Executive Officer

PARENT SUB:        
AE Advanced Fuels Keyes, Inc.,
a Delaware corporation
       
By:
/s/ Eric A. McAfee     Name: Eric A. McAfee     Title: Chairman and Chief
Executive Officer

 
 
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