Exhibit 10.1

* Confidential treatment requested as to certain portions, which portions were
omitted and filed separately with the Securities and Exchange Commission.

PROJECT AGREEMENT

This Project Agreement (the “Agreement” is entered into as of this 1st day of
December, 2009, by and among Cilion, Inc., a Delaware corporation, (“Cilion” or
“Owner”), AE Biofuels, Inc., a Nevada corporation (“AE” or “Parent”), AE
Advanced Fuels, Inc., a Delaware corporation (“AE Sub” or “Parent Sub”) and AE
Advanced Fuels Keyes, Inc., a Delaware corporation(the “Project Company”), each
a wholly-owned subsidiary of AE.  Owner, AE and the Project Company are each
referred to herein individually as a “Party” and collectively, as the “Parties.”

RECITALS

WHEREAS, AE has three patents pending on its proprietary ambient temperature
cellulosic ethanol process utilizing solid substrate enzyme production
technology, a combination of enzymes and a cellulose/corn design for low cost
conversion of corn ethanol facilities into the integrated use of starch and
cellulosic feedstocks (the “AE Technology”);

WHEREAS, AE built and operates a commercial demonstration facility in Butte,
Montana that uses the AE Technology to convert wheat straw, corn stover,  and
other low-lignin agricultural waste into cellulosic ethanol;

WHEREAS, AE plans to use the AE Technology to:

(a)

convert existing corn ethanol facilities into the use of AE’s enzymes in order
to reduce power and water costs while continuing to use corn starch as
feedstock;

(b)

operate existing corn ethanol plants;

(c)

convert corn ethanol facilities into integrated corn/cellulosic ethanol
production using the integrated AE Technology; and

(d)

convert corn ethanol facilities into cellulose-only ethanol production
facilities.

WHEREAS, AE is * (the “Equity Funding”);

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WHEREAS, Owner built and operated a 55 million gallon capacity corn ethanol
facility in Keyes, California that is not currently in operation (the “Keyes
Plant”), as further described in Exhibit “B”.  The Keyes Plant also includes the
real property on which the Keyes Plant is situated and identified in Exhibit
“A”;

WHEREAS, Praj Industries, an Indian engineering company (“Praj”), designed and
constructed the Keyes Plant pursuant to the Praj Agreements (as hereinafter
defined) and granted Owner a license to use certain proprietary technology and
information of Praj in connection with Owner’s ownership, operation, maintenance
and repair of the Keyes Plant upon the terms and conditions set forth therein
(the “Praj License”);

WHEREAS, Praj has agreed to provide $1 million to be used for operating expenses
in connection with the Repair and Retrofit Activities (as hereinafter defined)
(the “Praj Funds”); and

WHEREAS, AE formed the Project Company as a wholly-owned subsidiary to perform
the Repair and Retrofit Activities at the Keyes Plant, to lease the Keyes Plant
from Owner for up to thirty-six (36) months pursuant to the Lease, to return the
Keyes Plant to operation, and to then upgrade the plant with new capabilities
for use of non-food feedstocks for ethanol production at lower operating cost
(the “Project”), all as more particularly described herein.

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 as follows:

Section 1.

DEFINITIONS

“AE” is defined in the Preamble.

“AE Common Stock” means the common stock, $.001 par value per share, of AE
Biofuels, Inc.

“AE Technology” has the meaning set forth in the Recitals.

“Affiliate” means, with respect to a Party, a wholly-owned subsidiary or
majority-owned subsidiary of such Party.

“Agreement” is defined in the Preamble.

“Capital Expenditures” means all documented costs approved by Owner in writing
and incurred by AE, AE Sub or the Project Company with respect to upgrades to

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the Keyes Plant, including all capital expenditures incurred with respect to the
Repair and Retrofit Activities, plant modifications pursuant to Section 6.2, and
all other capital expenditures approved in writing by Owner.

“Change of Control” of a Party means (a) the acquisition by any Third Party of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) of more than fifty percent (50%) of
the then outstanding shares of a Party’s voting securities in one or more
transactions; (b) the consolidation in one or more transactions of a Party with,
or merger of a Party into, another corporation or business entity in each case,
if and only if, following such consolidation or merger, any Third Party has
beneficial ownership of more than fifty percent (50%) of, respectively, the then
outstanding shares of voting securities of the corporation resulting from such
consolidation or merger and/or the combined voting power of the outstanding
voting securities of such corporation or other business entity resulting from
such consolidation or merger entitled to vote generally in the election of
directors (or other persons having the general power to direct the affairs of
such entity).  A Third Party (for purposes of determining a “Change of Control”
of Owner) shall not be deemed to include any stockholder of Owner or any of
their Affiliates).

“Contract” shall mean any agreement, contract, insurance policy, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding.

“Environmental Laws” shall mean any Legal Requirement concerning human health
and safety, pollution or protection of the environment, or the storage,
handling, use, generation, treatment, storage, transportation, disposal, release
or threatened release of Hazardous Materials, including but not limited to the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
§ 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. § 5101 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.),
the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.), the Clean
Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
§ 2601 et seq.), the Oil Pollution Act (33 U.S.C. § 2701 et seq.), the
Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), the Emergency
Planning and Community Right-to-Know Act (42 U.S.C. § 11001 et seq.), the
Porter-Cologne Water Quality Control Act (Cal. Water Code § 13000 et seq.), the
Safe Drinking Water and Toxic Enforcement Act of 1986 (Cal. Health & Safety Code
§ 25249.5 et seq.), the Hazardous Substance Account Act (Cal. Health & Safety
Code § 25300 et seq.), the Hazardous Waste Control Act (Cal. Health & Safety
Code § 25100 et seq.), and the California Clean Air Act (Cal. Health & Safety
Code § 39000 et seq.).

“Equity Funding” has the meaning set forth in the Recitals.

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“Existing Permits” has the meaning set forth in Section 5.1.

“Governmental Authorization” shall mean any approval, consent, license, permit,
waiver or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Entity or pursuant to
applicable Legal Requirements.

“Governmental Entity” shall mean (i) a court, arbitral tribunal, administrative
agency or commission, (ii) a nation, state, county, city town, village, district
or other jurisdiction of any nature, (iii) federal, state, local, municipal,
foreign or other government, or (iv) other governmental or other regulatory
authority or agency.

“Hazardous Materials” means any chemical, substance, material or waste
(including constituents thereof), that is or may be hazardous to human health or
safety or to the environment, that are now or become in the future listed,
defined, or regulated in any manner by any Environmental Law, whether such law
is regulatory or statutory, and is local, state or federal, and from time to
time adopted.

“Industry Standards” means those standards of care and diligence normally
practiced by engineering, construction and operating firms in performing
services of a similar nature for similar ethanol projects in the United States
and in accordance with good engineering design and operating practices,
applicable laws, applicable Permits, and that conform in all material respects
to the manufacturer’s operation and maintenance guidelines, in each case as
applicable to the equipment in question, taking into account such equipment’s
size, service and type.

“Lease” has the meaning set forth in Section 5.3.

“Lease Commencement Date” shall mean the date determined by Project Company and
Owner in accordance with Section 4.9.  

“Legal Requirement” shall mean any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.

“Liabilities” shall mean liabilities and obligations, secured or unsecured,
whether absolute, accrued, contingent, fixed or otherwise, whether known or
unknown and whether or not due, including liabilities for Taxes and all
off-balance sheet liabilities and obligations.

“Licenses” shall mean all licenses, sublicenses and other agreements pursuant to
which Owner or any subsidiary has acquired rights in or to any trademarks,
patents,

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copyrights or trade secrets and all licenses, sublicenses and other agreements
pursuant to which Owner or any subsidiary has licensed or transferred the right
to use any of the foregoing, other than standard business software licenses.

“Losses” means any and all losses, costs, damages, fines, penalties, interests,
assessments, fees or expenses (including reasonable attorney’s fees)

“Organizational Documents” shall mean (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) the articles of organization, operating agreement and limited
liability company agreement of a limited liability company; (e) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of a Person; and (f) any amendment to any of the foregoing

“Owner” is defined in the Preamble.

“Owner Financing” means the existing credit facility with CoBank, ACB, as
administrative agent, secured in part by the Keyes Plant.

“Owner Stock” means the issued and outstanding capital stock, $.001 par value
per share, of Cilion, Inc.

“Parties” and “Party” are as defined in the Preamble.

“Permits” shall mean all governmental and non-governmental authorizations,
consents, permits, approvals, entitlements, licenses, rulings, exemptions,
variances, orders, judgments, decrees, declarations or regulations necessary to
design, develop, construct, install, operate, use, maintain and test the
Project, including with respect to the Repair and Retrofit Activities.

“Person” shall mean a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or organization.

“Plant Repair Plan” shall mean the Project Company’s plan to conduct the Repair
and Retrofit Activities of the Keyes Plant based upon the engineering work
conducted by Owner and its engineering and process consultants, including
approved design changes provided by Praj, which has been approved in writing by
Owner and is attached hereto as Exhibit “C”, as may be amended in writing by
mutual consent of Owner and Project Company from time to time.  

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“Possession Date” means the date that Owner delivers possession of the Keyes
Plant to the Project Company to commence the Repair and Retrofit Activities
pursuant to Section 4.1.

“Praj Agreements” means (a) the Contract for Supply of Critical and Proprietary
Equipment for Dehydrated Ethanol Project, dated as of September 20, 2006,
between Owner and Praj, and (b) the Contract for Supply of Structural Material
for Dehydrated Ethanol Project, dated as of December 15, 2006, between Owner and
Praj, including, in each case, all schedules, annexes, addendums and amendments
thereto.

“Praj Funds” has the meaning set forth in the Recitals.

“Praj License” has the meaning set forth in the Recitals.

“Project” has the meaning set forth in the Recitals.

“Project Documents” means, collectively, this Agreement and the Lease and any
other material agreements entered into in connection with the Project.

“Repair and Retrofit Activities” is defined in Section 4.1.

“Startup Losses” shall mean documented net operating losses actually incurred by
the Project Company during the first three months after the Lease Commencement
Date.

“Substantially Complete” and “Substantial Completion” shall mean that all Repair
and Retrofit Activities have been substantially completed in accordance with
this Agreement and the Plant Repair Plan so that the Project Company can use the
Keyes Plant for its intended purposes without material interference to the
Project Company conducting its ordinary business activities thereon.

“Tax” or “Taxes” shall mean (i) any and all U.S. federal, state, local and
non-U.S. taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts, (ii) any liability for the payment of any amounts of
the type described in clause (i) of this definition as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period,
and (iii) any liability for the payment of any amounts of the type described in
clauses (i) or (ii) of this definition as a result of any express or implied
obligation to indemnify any other person or as a result of any obligations under
any Agreements or arrangements with any other

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person with respect to such amounts and including any liability for taxes of a
predecessor or transferor entity.

“Third Parties” shall mean any entity or person other than Owner, AE and their
respective affiliates.

“Transactions” shall mean all the transactions provided for or contemplated by
this Agreement and the Lease.

Section 2.

FORMATION OF PROJECT COMPANY; ADVISORY BOARD.

2.1

Formation of Project Company.  As of the date hereof, AE has formed the Project
Company as a corporation in Delaware.  AE has delivered copies of all
Organization Documents relating to the Project Company to Owner.  

2.2

Project Company Advisory Board.  The Organizational Documents of the Project
Company will provide that Owner may appoint two representatives to serve on the
Project Company’s advisory board.

Section 3.

FINANCING OF THE PROJECT COMPANY

3.1

AE Funding for Repair and Retrofit Activities.  Promptly upon receipt of the
Equity Funding but in no event later than 5 days thereafter, AE or an Affiliate
of AE (other than the Project Company) will contribute funds in cash equal to
$1,600,000 to the Project Company, such funds to be contributed on or before
January 31, 2010 (the “AE Funds”).  AE shall notify Owner in writing of the
receipt of the Equity Funding and the contribution of the AE Funds to the
Project Company, and shall provide written evidence of the foregoing reasonably
satisfactory to the Owner.  

3.2

Praj Funds.  Subject to the deposit of the AE Funds to the Project Company,
Owner will cause Praj to remit $500,000 of the Praj Funds to the Project
Company.  Owner will cause the remaining $500,000 of the Praj Funds to be
contributed to the Project Company within fifteen (15) days after Substantial
Completion.  

3.3

Government Grant and Loan Applications.  Owner shall reasonably cooperate with
AE and the Project Company in submitting various applications for government
sponsored grants and loans on behalf of the Project Company (the “Project Grant
Applications”).  All Confidential Information included in the Project Grant
Applications shall be and shall remain the property of the disclosing party.  In
the event that a Project Grant Application is accepted and funds are granted or
loans guaranteed, all funds shall become and remain the property of the Project
Company to be used in accordance with this Agreement.

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3.4

Use of Funds.  Unless otherwise specified herein, all Praj Funds and the AE
Funds received by the Project Company shall be used by the Project Company to
implement the Repair and Retrofit Activities in accordance with the Plant Repair
Plan and for working capital purposes, including hiring employees and operating
the Keyes Plant after the Lease Commencement Date as set forth herein.
Notwithstanding the foregoing, before using any of the Praj Funds, the Project
Company shall obtain Owner’s prior consent, not to be unreasonably withheld if
such Praj Funds are used for working capital and the Repair and Retrofit
Activities.

Section 4.

REPAIR AND RETROFIT ACTIVITIES; SUBSTANTIAL COMPLETION.

4.1

Possession Date.  Owner shall deliver possession of the Keyes Plant to the
Project Company promptly following Owner’s receipt, to its sole satisfaction, of
all documentation reasonably requested by Owner evidencing that the Project
Company has received $1.6 million of financing for the Repair and Retrofit
Activities; provided, however, that the Project Company shall not be obligated
to take possession of the Keyes Plant and to begin the Repair and Retrofit
Activities until it has received at least $2,000,000 in funds, including
$500,000 of Praj Funds.

4.2

Repair and Retrofit Activities.  Subject to the terms and conditions set forth
herein and in the Lease, the Project Company shall perform, and AE shall assist
and/or support the Project Company in the performance of, all services,
activities and other actions required for the development of the Project, in
accordance with the directions of the Board of Directors of the Project Company,
including but not limited to assistance and/or support in the following
activities to be performed by the Project Company (collectively, the “Repair and
Retrofit Activities”):

(a)

Repair and retrofit the Keyes Plant in accordance with the Plant Repair Plan, as
such plan may be updated and amended from time to time upon the mutual agreement
of the Owner and the Project Company;

(b)

Manage all aspects of the repair and retrofit of the Keyes Plant in a manner
consistent with the Plant Repair Plan;

(c)

Ensure that an adequate number of experienced, competent and properly licensed
personnel are hired and retained as employees or independent contractors to
implement the Plant Repair Plan, including, without limitation, the current
Keyes Plant’s Plant Manager and Plant Engineer; and

(d)

 (1) Prepare and submit all required regulatory filings for the repair, retrofit
and operation of the Project, (2) procure and maintain all Permits

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necessary or appropriate for the repair, retrofit and operation of the Project,
(3) prepare and submit all filings of any nature that are required to be made
under any governmental approval or filing, and (4) prepare and submit all other
filings of any nature that are required to be made by Project Company under any
laws applicable to it or the Project.

4.3

Performance.  The Project Company agrees following the Possession Date, subject
to the receipt of $500,000 in Praj Funds, to diligently perform the Repair and
Retrofit Activities in accordance with the Plant Repair Plan to prepare the
Keyes Plant for its intended use.  The Project Company shall commence the Repair
and Retrofit Activities promptly following the Possession Date, subject to the
receipt of $500,000 in Praj Funds, and thereafter continue the same with due
diligence to achieve Substantial Completion as soon as commercially possible.
 The Repair and Retrofit Activities shall be performed (a) by the Project
Company at the Project Company’s sole cost and expense, (b) in a commercially
reasonable manner and in accordance with the Plant Repair Plan and all
applicable laws, ordinances, codes and insurance company requirements, Permit
requirements and with Industry Standards, (c) by duly qualified or licensed
persons, (d) lien free other than liens filed in the ordinary course of business
that are released upon completion of work, and (e) otherwise in accordance with
all of the terms, covenants and conditions of this Agreement and the Lease.  

4.4

Supply of Materials.  The Project Company shall obtain and provide all supplies
or services required for the performance of the Repair and Retrofit Activities,
including all temporary structures and other facilities required for the proper
and safe performance and completion of the Repair and Retrofit Activities or
that the Project Company must provide for the use of the Project Company or
other parties and that do not form part of the Repair and Retrofit Activities
such as office trailers, boarding, fences, covered ways, temporary footways and
stairs, protection for workers such as guardrails, fences, notices, temporary
lights, water and other consumables, utilities and services, erection structures
and equipment such as shoring, falsework, forming materials, scaffolding,
temporary stairs, staging, and all sanitary, safety, and first aid and fire
prevention facilities of a temporary nature, and obtain and pay for an adequate
supply of fuel, water, power, and all other necessary construction utility
services (including fuel for construction equipment), all construction
chemicals, lubricants, and construction consumables, and disposal of sewage,
waste material, rubbish, and spoils generated by the Project Company, in each
case as necessary for the Project Company’s performance of the Repair and
Retrofit Activities.

4.5

Maintenance of Project Site.  The Project Company shall maintain the Project
site clear of debris, waste material, and rubbish.  The Project Company shall
dispose of such debris, waste material, and rubbish in accordance with
applicable law.  If Owner reasonably believes any materials, tools, equipment,
machinery

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and surplus materials brought on to the Project site by the Project Company or
any other Person should be removed, the Project Company shall promptly upon
written request by the Owner remove same from the Project site at its sole cost
and expense.

4.6

Hazardous Material Business Plan.  The Project Company shall prepare, maintain
and comply in all respects with a Hazardous Material Business Plan in accordance
with Legal Requirements, including the rules and regulations of the Stanislaus
County Environmental Resources Department.  The Project Company shall provide
Owner with copies of its Hazardous Material Business Plan from time to time upon
Owner’s request.

4.7

Project Site Security.  During the performance of any of the Repair and Retrofit
Activities at the Project site, the Project Company shall provide all necessary
and reasonably appropriate safeguards for the protection of the Project, and all
persons and other property related thereto, including lights and barriers, guard
service, controlled access, and other measures reasonably required to prevent
vandalism, theft, and danger to the Project and personnel.  The Project Company
shall keep Owner informed of any security breaches promptly upon the occurrence
thereof.  

4.8

Cooperation; Right to Participate in Project Activities.  The Parties agree to
cooperate with one another in the performance of their obligations under this
Agreement.  For all Repair and Retrofit Activities under this Agreement, Owner
may participate fully in all aspects of implementation, including the
opportunity to attend any meetings or discussions with third parties and
Governmental Entities.  Any conversion or modification of the equipment or
process at the Keyes Plant (other than any conversion or modification that is a
Repair and Retrofit Activity) will require the prior written approval from Owner
(which approval may be given or withheld in Owner’s sole and absolute
discretion).

4.9

Joint Inspection; Substantial Completion.  Project Company and Owner will
jointly inspect the Keyes Plant upon completion of the Repair and Retrofit
Activities to verify that the Repair and Retrofit Activities are Substantially
Complete in accordance with the requirements of the Plant Repair Plan.  If
Project Company and Owner mutually agree that the Repair and Retrofit Activities
are Substantially Complete, which agreement shall not unreasonably be withheld,
the Project Company and Owner shall execute a “Certificate of Substantial
Completion” that will set forth (i) the date of Substantial Completion, and (ii)
the Lease Commencement Date.  

4.10

Hiring of Employees.  Upon the execution of this Agreement and the receipt by
the Project Company of the first $500,000 of the Praj Funds, the Project Company
will hire the Keyes Plant’s current Plant Manager and Plant Engineer.  

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Section 5.

PLANT OPERATIONS.

5.1

Assignment or Transfer of Permits.  Set forth on Exhibit “D” attached hereto are
all of the material Permits required for the maintenance and operation of the
Keyes Plant as operated to the date hereof (collectively, the “Existing
Permits”).  Owner shall use commercially reasonable efforts to transfer or cause
to be transferred to the Project Company all Existing Permits that are capable
of being transferred or reasonably shall assist the Project Company to obtain
such Permits that are not transferable.  The Project Company shall promptly
reimburse Owner for all costs and expenses related to such transfer upon receipt
of an invoice setting for such costs and expenses.  Upon the expiration or
earlier termination of this Agreement or the Lease, the Project Company (at
Owner’s sole cost and expense) shall promptly transfer or cause to be
transferred all such Permits back to Owner.  

5.2

Assignment of Praj License.  Effective upon the Lease Commencement Date, Owner
shall use its commercially reasonable efforts to assign all of its rights, title
and interest in and to the Praj License to the Project Company.  Such assignment
shall automatically terminate and all rights, title and interest in and to the
Praj License shall revert to Owner upon the expiration or earlier termination of
this Agreement or the Lease.  

5.3

Lease of Keyes Plant.  Concurrently with the execution of this Agreement, the
Project Company and Owner shall enter into a thirty-six (36) month lease of the
Keyes Plant in the form of lease attached hereto as Exhibit “E” (the “Lease”).  

5.4

Provision of Services.  The Project Company shall install, connect, and maintain
at its own expense during its performance under this Agreement all utilities,
facilities, and services required for the performance of the Repair and Retrofit
Activities and the operation of the Keyes Plant.  All actions taken by the
Project Company concerning the utilities, facilities, and services used or
provided hereunder shall follow all applicable laws and the standards of
performance set forth in this Agreement.

5.5

Payment for Services.  Commencing on the Possession Date, the Project Company
shall pay when due all utilities and other similar charges and shall arrange
with local authorities and utility companies having jurisdiction over the
Project and the Keyes Plant for the provision of utilities.

5.6

Safety.  During the performance of the Repair and Retrofit Activities at the
Project site and at all times during the operation of the Keyes Plant, the
Project Company shall be solely responsible for the safety of the persons at the
Project site and for the safe performance of the activities at the Project site.
 The Project

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Company shall give notices and comply with applicable laws, ordinances, rules,
regulations and lawful orders of public authorities bearing on the safety of
persons or property or their protection from damage, injury or loss.  The
Project Company’s safety program shall be designed to provide a safe and
healthful environment at the Project site and shall, among other things, seek to
achieve an incident free performance of such activities.  The Project Company
shall be solely responsible for implementing and following safety programs at
the Project site and shall perform the Repair and Retrofit Activities and
operate the Keyes Plant in accordance with such programs.  The Project Company
shall promptly provide written notice to Owner of any incidents or accidents
that occur on the Project site and such other information as may be reasonably
requested by Owner from time to time.  

5.7

Governmental Plans and Filings.  In the event the Project Company resubmits any
plans or makes any additional or supplemental filings for the Keyes Plant to any
Governmental Entity, following the Project Company’s’ initial submission of the
same, the Project Company shall first submit such plans and filings to Owner for
Owner’s review and approval, not to be unreasonably withheld, conditioned or
delayed.  Notwithstanding anything to the contrary, Owner shall provide the
Project Company with any comments to the plans set forth in this Section 4.2
within ten (10) days after receipt thereof.  The Project Company shall consider
any such comments in good faith and incorporate them into the plans and filings
before submission.   

5.8

Financial Reporting.  Within sixty (60) days after the end of each calendar
quarter commencing on the Possession Date during the term hereof, Project
Company shall deliver to Owner a copy of its unaudited quarterly account
balances of cash and cash equivalents, total stockholders equity, revenue and
net income prepared and reported in accordance with generally accepted
accounting principles consistently applied and certified to their accuracy by an
authorized officer for the Project Company.  Owner agrees to maintain the
confidentiality of all financial reporting supplied or disclosed by the Project
Company.

Section 6.

FUTURE PLANT MODIFICATIONS.

6.1

AE Technology License.  AE or its Affiliate shall provide to the Project Company
on or prior to Lease Commencement Date a royalty-free, site-specific license in
and to the Project Company for the AE Technology to run coterminous with the
term of the Lease, including any early termination thereof.

6.2

Plant Modifications.  The Project Company shall not make any modifications to
the Keyes Plant, including any equipment or process modifications or
modifications to the Plant Repair Plan in connection with the Repair and
Retrofit

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Activities or any other modifications to the Keyes Plant after Substantial
Completion, without, in each case, the prior written consent of Owner.

Section 7.

REPRESENTATIONS AND WARRANTIES OF OWNER.  Owner represents and warrants to AE
and the Project Company that the following statements contained in this Section
7 are true and complete as of the date of this Agreement (unless specifically
referring to an earlier date, in which case such statements shall be true and
correct as of such date):  

7.1

Organization; Qualification of Owner.  Owner is a corporation, duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization, as applicable; (ii) has full corporate power and
authority to carry on its business as it is being conducted and as proposed to
be conducted and to own and use the properties and assets it now owns or
proposes to acquire; (iii) is duly qualified or licensed to do business as a
foreign corporation in good standing in California; and (iv) has all requisite
power and authority to execute and deliver this Agreement and the Lease and
perform its obligations hereunder and thereunder, and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and the Lease.  Cilion has heretofore delivered to AE complete and correct
copies of the Organizational Documents of Cilion as presently in effect.

7.2

Binding Agreement; Consents and Approvals; No Conflict, Default or Violation.

(a)

Each Project Document to which it is a party has been duly executed and
delivered by Owner and constitutes a legal, valid and binding obligation of
Owner enforceable against Owner in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).

(b)

Subject to receipt of approval of this Project Agreement and the Lease Agreement
by CoBank as administrator of the Owner Financing, the execution, delivery or
performance of each Project Document to which it is a Party by Owner will not,
directly or indirectly (with or without notice of lapse of time or both)

contravene, conflict with, or result in a violation of (i)(A) any provision of
the Organizational Documents of Owner, or (B) any resolution adopted by the
board of directors or shareholders of

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Owner; or (ii) any provision of any indenture, mortgage, chattel mortgage, deed
of trust, lease, conditional sales contract, loan or credit arrangement or other
agreement or instrument to which Owner is a party or by which it or its
properties may be bound or affected.

(c)

Other than in connection with the Owner Financing and the assignment of the Praj
License, Owner is not or will not be required to give any notice to or obtain
any consent from any Person in connection with the execution, delivery or
performance of this Agreement or the Lease or the consummation of any of the
Transactions.

(d)

No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required with respect to Owner in
connection with the execution and delivery of this Agreement, the Lease or the
consummation of the Transactions contemplated hereby and thereby, except for (i)
such consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement or the Lease.

7.3

Title to Properties; Encumbrances.  Owner has good, valid and marketable title
to the real property and improvements thereon comprising the Keyes Plant, which
title is subject only to those liens, documents and matters set forth in the
Title Report attached as Exhibit “F”, to the extent valid and enforceable, and
all applicable laws, ordinances and regulations.  

7.4

Environmental Matters.  Except as noted in Exhibit D, to Owner’s knowledge, the
Keyes Plant is in material compliance with all applicable Environmental Laws and
Owner has not received any written notice from any Governmental Entity that
alleges that the Keyes Plant is not in material compliance with

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any applicable Environmental Laws.  Owner has provided to AE copies of all
environmental-related assessments, reports, data, results of investigations or
audits, such as Phase I or Phase II reports and other written documentation that
is in the possession and control of Owner regarding the environmental condition
of, or the compliance (or noncompliance) of the Keyes Plant with any
Environmental Laws.  Notwithstanding anything in this Agreement to the contrary,
Owner makes no representations or warranties whatsoever regarding any aspect of
such environmental documentation, including without limitation, the accuracy or
completeness of the documentation, its preparation, or any information upon
which it is based.  Any reliance on the environmental documentation or any
information contained therein shall be at the risk of AE and the Project
Company.

7.5

Litigation.  There is no action, suit, inquiry, proceeding or investigation by
or before any court or Governmental Entity pending or, to the actual knowledge
of Owner without independent inquiry or investigation, threatened against or
involving Owner that could materially adversely affect the financial condition
of Owner, Owner’s ability to observe and perform fully its agreements and
obligations hereunder and under the Lease, or the Project Company’s ability to
operate the Keyes Plant as contemplated by this Agreement and the Lease.

7.6

Compliance with Laws.  Owner has complied in a timely manner and in all material
respects with all Legal Requirements that affect the Keyes Plant, and no notice,
charge, claim, action or assertion has been received by Owner or has been filed,
commenced or, to the knowledge of Cilion, threatened against Owner by any
Governmental Entity alleging any violation of any Legal Requirements.  

7.7

.  No agent, broker, investment banker, financial advisor or other firm or
Person is or will be entitled to any brokers’ or finder’s fee or any other
commission or similar fee from Owner or any of its Affiliates in connection with
any of the Transactions.

7.8

Representations.  No representation or warranty by Owner contained in this
Agreement or the Lease contains at the time it was made, or will contain at the
time it is made, any untrue statement of material fact or omits, or will at the
time it is made omit, to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.

7.9

Intellectual Property Rights.  Exhibit “G” lists all of the intellectual
property owned or licensed by Owner, used in connection with the Keyes Plant
(the “Owner Intellectual Property”).  The Owner Intellectual Property is hereby
licensed royalty-free to the Project Company pursuant to this Agreement.  To the
knowledge of Owner without independent inquiry or investigation, use by Owner or
the

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Project Company of the Owner Intellectual Property does not or will not infringe
any rights of any Third Party and no activity of any Third Party infringes upon
the rights of Owner or the Project Company with respect to any of Owner
Intellectual Property. To the extent any Owner Intellectual Property is licensed
to Owner by a Third Party, such license is in full force and effect and the
execution, delivery or performance of this Agreement or the Lease by Owner or
the consummation by Owner of any of the Transactions will not, directly or
indirectly (with or without notice of lapse of time or both) give any party the
right to terminate or cancel such license (subject to getting consent with
respect to the Praj License).

Section 8.

REPRESENTATIONS AND WARRANTIES OF AE AND THE PROJECT COMPANY.  Each of AE and
the Project Company represent and warrant to Owner that the following statements
contained in this Section 8 are true and complete as of the date of this
Agreement unless specifically referring to an earlier date, in which case such
statements shall be true and correct as of such date):

8.1

Organization; Qualification of AE.  Such Party is a corporation, duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization, as applicable; (ii) has full corporate power and
authority to carry on its business as it is being conducted and as proposed to
be conducted and to own and use the properties and assets it now owns or
proposes to acquire; (iii) is duly qualified or licensed to do business as a
foreign corporation in good standing in every jurisdiction in which the
ownership and use of its property or the conduct of its business requires such
qualification; and (iv) has all requisite power and authority to execute and
deliver the Project Documents to which it is a party and perform its obligations
thereunder, and has taken all necessary action to authorize the execution,
delivery and performance of the Project Documents to which it is a party.  

8.2

Binding Agreement; Consents and Approvals; No Conflict, Default or Violation.

(a)

Each Project Document to which it is a party has been duly executed and
delivered by such Party and constitutes a legal, valid and binding obligation of
such Party enforceable against such Party in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).

(b)

The execution, delivery or performance of each Project Document to which it is a
party or the consummation by such Party of any of the

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Transactions will not, directly or indirectly (with or without notice of lapse
of time or both):

(i)

contravene, conflict with, or result in a violation of (A) any provision of the
Organizational Documents of AE or the Project Company, or (B) any resolution
adopted by the board of directors or shareholders of AE or the Project Company;

(ii)

contravene, conflict with, or result in a violation of, or give any Governmental
Entity or other Person the right to challenge any of the Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement to which,
AE or the Project Company, or any of the assets owned or used by AE or the
Project Company, may be subject;

(iii)

contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Entity the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any Governmental Authorization that is
held by AE or the Project Company or that otherwise relates to the business of,
or any of the assets owned or used by, AE or the Project Company;

(iv)

contravene, conflict with, or result in a violation or breach of any provision
of any provision of any indenture, mortgage, chattel mortgage, deed of trust,
lease, conditional sales contract, loan or credit arrangement or other agreement
or instrument to which AE or the Project Company is a party or by which it or
its properties may be bound or affected to which it is a party; or

(v)

result in the imposition or creation of any Encumbrance upon or with respect to
any of the assets owned or used by the Owner.

(c)

Except for the application for and the obtaining of the necessary permits to
operate and maintain the Keyes Plant, including those that may be listed on
Exhibit “D”, and except for such consents, authorizations, filings,

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approvals and registrations which, if not obtained or made, would not prevent,
materially alter or delay any of the transactions contemplated by the Project
Documents, no consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required with respect to
AE of the Project Company in connection with the execution and delivery of any
Project Document or the consummation of the Transactions contemplated hereby and
thereby.

8.3

Litigation.  There is no action, suit, inquiry, proceeding or investigation by
or before any court or Governmental Entity pending or, to the actual knowledge
of such Party without independent inquiry or investigation, threatened against
or involving such Party that could materially adversely affect such Party’s
ability to observe and perform fully its agreements and obligations under each
Project Document to which it is a party.

8.4

Intellectual Property.  The Project Company owns or prior to the Lease
Commencement Date will obtain the right to use all patents, trademarks, service
marks, trade names, copyrights, licenses, franchises, and Permits necessary to
perform the Repair and Retrofit Activities and to operate the Keyes Plant as
currently contemplated without conflict with the rights of others.

Section 9.

FURTHER COVENANTS.  

9.1

Cooperation.  Upon the terms and subject to the conditions of this Agreement,
AE, Owner and the Project Company shall use their respective commercially
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done and cooperate with each other in order to do, all things
necessary, proper or advisable (subject to any applicable laws) to consummate
the Transactions as promptly as practicable including, but not limited to the
preparation and filing of all forms, registrations and notices required to be
filed to consummate the Transactions and the taking of such actions as are
necessary to obtain any requisite approvals, authorizations, consents, orders,
licenses, qualifications, exemptions or waivers by any Third Party or
Governmental Entity.  In addition, no Party hereto shall take any action after
the date hereof that could reasonably be expected to materially delay the
obtaining of, or result in not obtaining, any permission, approval or consent
from any Governmental Entity or other Person required to be obtained.

9.2

Consult with Other Party.  Prior to the Lease Commencement Date, each Party
shall promptly consult with the other Parties hereto with respect to, provide
any necessary information with respect to, and provide the other Parties (or
their respective counsel) with copies of, all filings made by such Party with
any Governmental Entity or any other information supplied by such Party to a

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Governmental Entity in connection with this Agreement and the Transactions.
 Each Party hereto shall promptly provide the other Parties with copies of any
communication received by such Party from any Governmental Entity regarding any
of the Transactions.  If any Party hereto or Affiliate thereof receives a
request for additional information or documentary material from any such
Governmental Entity with respect to any of the Transactions, then such Party
shall endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other Parties, an appropriate
response in compliance with such request.  To the extent that transfers,
amendments or modifications of Permits (including environmental Permits) are
required as a result of the execution of this Agreement, the other Project
Documents or consummation of any of the Transactions, Owner shall use
commercially reasonable efforts to effect such transfers, amendments or
modifications.

9.3

Public Disclosure.  Prior to the Lease Commencement Date, AE, the Project
Company and Owner will consult with each other, and agree, before issuing any
press release or otherwise making any public statement with respect to this
Agreement and will not issue any such press release or make any such public
statement without the written consent of the other, except as may be required by
law or any listing agreement with a national securities exchange or market.

9.4

Grant of Right of First Refusal by Owner.  Provided that this Agreement and the
Lease are both in full force and effect, the AE Funds have been received by the
Project Company and there is no uncured event of default by either AE or the
Project Company hereunder or thereunder beyond any applicable cure period,
before Owner may (i) sell or otherwise transfer all or any portion of its
interest in the real property and tangible personal property (other than the
equipment listed on Exhibit “H”) comprising the Keyes Plant necessary for the
operation of the Keyes Plant (collectively, the “Keyes Plant Assets”), or (ii)
consummate a Change in Control, AE shall have a right of first refusal to
purchase Owner or all but not less than all of the Keyes Plant Assets on the
terms and conditions set forth in this Section 9.4 (the “ Right of First
Refusal”).  

(a)

Notice of Proposed Transfer. Owner shall (a) deliver to AE a written notice (the
“ROFR Notice”) stating: (i) Owner’s bona fide intention to sell or otherwise
transfer the Keyes Plant Assets or to consummate a Change of Control; (ii) the
name of each proposed purchaser or other transferee (“Proposed Transferee”);
(iii) the Keyes Plant Assets to be transferred to each Proposed Transferee if
the transaction is not a Change of Control; (iv) the bona fide cash price or
other consideration offered in connection with a Change of Control (including
the assumption of debt) or, if an asset sale, for which Owner proposes to
transfer the Keyes Plant Assets (the “Offered Price”); and (v) the material
terms and conditions of the proposed transfer (the “Offer Terms”) and (b) offer
the sale of Owner (if the transaction constitutes a Change of Control of

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Owner) or the Keyes Plant Assets if an asset sale, at the Offered Price and on
the Offer Terms to AE.  Owner shall provide to AE access to all of the due
diligence information provided to the Proposed Transferee.

(b)

Exercise of Right of First Refusal.  At any time within thirty (30) days after
receipt of the ROFR Notice, AE may, by giving written notice to Owner, elect to
purchase all, but not less than all, of the Keyes Plant Assets proposed to be
transferred to any one or more of the Proposed Transferees or acquire Owner, as
applicable, at the purchase price and on the terms determined in accordance with
subsection (c) below.  AE shall also provide Owner with such information as
reasonably requested by Owner to confirm that AE shall have the financial
resources to consummate the transaction.  Once an election is made by AE to
acquire Owner or the Keyes Plant Assets (if such transaction is structured as a
sale of assets), such election shall be final, binding and irrevocable.  

(c)

Purchase Price.  The purchase price (the “Purchase Price”) for the Owner or
Keyes Plant Assets, as applicable, purchased by AE under this Section shall be
the Offered Price, and the terms and conditions of the transferee shall be
identical in all material respects to the Offer Terms.  If the Offered Price
includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of each of
AE and Owner in good faith.

(d)

Payment.  Payment of the Purchase Price shall be made in cash (by wire transfer
of immediately available funds) in accordance with the Offer Terms, within
thirty (30) days after delivery of the written notice by AE as set forth in
Section 9.4(b).

(e)

Owner’s Right to Transfer.  If the Change of Control is not consummated or the
Keyes Plant Assets proposed in the ROFR Notice to be transferred, in each case
to a given Proposed Transferee are not purchased by AE within such thirty day
period after Owner’s receipt of AE’s election to purchase as otherwise provided
in this Section, then AE shall be in breach of this Agreement and shall be
liable for any and all Losses incurred by Owner as a result of the failure to
consummate such transaction.  In addition, Owner may consummate a Change of
Control or otherwise sell or otherwise transfer such Keyes Plant Assets to a
Third Party without complying with the terms contained in this Section 9.4.  If
AE elects not to exercise its rights of first refusal with respect to acquiring
Owner or the Keyes Plant Assets, or otherwise fails to provide notice to Owner
within thirty (30) days as set forth in Section 9.4(b) above, then Owner may
consummate a Change of Control or otherwise sell or otherwise transfer such
Keyes Plant Assets to the Proposed Transferee at the Offered Price or at a
higher price and on terms substantially similar to the Offer Terms, provided
that such sale or other transfer is consummated within one hundred eighty (180)
days after the date of the ROFR Notice.  

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If the Change of Control is not consummated or the Keyes Plant Assets described
in the ROFR Notice are not transferred to the Proposed Transferee within such
period, a new ROFR Notice shall be given to AE, and AE shall again be offered
the Right of First Refusal in accordance with this Section 9.4 before any Change
of Control or Keyes Plant Assets may be sold or otherwise transferred.

(f)

Termination of Right of First Refusal.  The Right of First Refusal shall
terminate immediately upon (i) the expiration or earlier termination of the
Lease or this Agreement, or (ii) a Change of Control of AE.

(g)

Assignment of Right of First Refusal.  The Right of First Refusal is personal to
and for the benefit of AE and shall not be assignable by AE at any time, except
to a wholly owned subsidiary of AE.

(h)

Reimbursement by Owner.  In the event that AE does not exercise the rights of
first refusal set forth in Sections 9.4 above after receipt of notice under
Section 9.4(a), and to the extent the Lease has not expired or has otherwise
been terminated, Owner shall pay to AE an amount equal to: (i) 100% of the
Capital Expenditures, plus (ii) the Startup Losses up to an aggregate amount not
to exceed Two Million Dollars ($2,000,000), if any, plus (iii) an amount equal
to eight percent (8%) of the total amounts set forth in (i) and (ii) above
multiplied by the actual number of years (or prorated for any partial years)
that have elapsed since the Lease Commencement Date.

9.5

Financial Condition.  In the event Owner reasonably determines that the Project
Company’s financial condition, based on the financial reports provided to Owner
pursuant to this Agreement, has materially declined relative to its condition as
of the date hereof, Owner shall notify the Project Company of same and the
respective Chief Financial Officers of each Party shall meet within ten (10)
days of such notice to review such financial condition.

Section 10.

CONDITIONS TO LEASE COMMENCEMENT DATE.  The Lease Commencement Date shall be
subject to the satisfaction by AE or the Project Company or waiver by Owner (in
writing) of each of the following conditions:

10.1

Repair and Retrofit Activities.  The Repair and Retrofit Activities shall be
Substantially Complete and all inspections by Owner and AE shall have been
completed.

10.2

Representations and Warranties of AE and the Project Company.  The
representations and warranties of AE and the Project Company in this Agreement
shall be true and correct in all material respects on and as of the Lease

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Commencement Date as though such representations and warranties were made on and
as of such time.

10.3

Representations and Warranties of Owner.  The representations and warranties of
Owner in this Agreement shall be true and correct in all material respects on
and as of the Lease Commencement Date as though such representations and
warranties were made on and as of such time.

10.4

Performance of Covenants.  AE and the Project Company shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Lease Commencement Date.

10.5

Performance of Covenants by Owner.  Owner shall have performed and complied in
all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Lease
Commencement Date.

Section 11.

OPTION TO EXCHANGE CILION SHARES FOR SHARES OF AE COMMON STOCK.

11.1

Option.  The Owner Stockholders shall have the right on or before June 30, 2011
to exchange not less than 50.1% of the aggregate number of outstanding Owner
Shares into a number of shares of AE Common Stock (the “Exchange Option”) equal
to a fraction, the numerator of which is the number of Owner Shares the Owner
shareholders seek to exchange for shares of AE Common Stock and the denominator
of which is the total number of Owner Shares held by all the Owner shareholders,
multiplied by 35 million (the “Exchange Shares”).

11.2

Exercise of Option.  At any time on or before June 30, 2011, the Owner
Shareholders may exercise their Exchange Option by written notice to AE (the
“Exercise Notice”).  The Exercise Notice shall set forth the name of each Owner
Shareholder who is exercising the Exchange Option, and the number of Owner
Shares each Owner Shareholder is exchanging.  Upon the receipt by AE of the
Exercise Notice, AE will, subject to Section 9.3 below, exchange the Owner
Shares for AE Common Stock in accordance with Section 9.1 above.

11.3

Conditions.  The obligations of AE to consummate the Exchange shall be subject
to the satisfaction in AE’s sole and absolute discretion or waiver on or prior
to the Exchange Date of each of the following conditions:

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(a)

Stock Exchange Agreement.  The Cilion Shareholders shall have entered into a
Stock Exchange Agreement with AE on such terms as are reasonably acceptable to
AE.

(b)

Owner’s Performance.  All of the covenants and obligations that Cilion is
required to perform or comply with pursuant to this Agreement at or prior to the
Conversion Date shall have been duly performed and complied with in all material
respects;

(c)

Material Adverse Change.  Since the date of this Agreement, there shall not have
been an event shall have occurred or circumstance exists except for those that
could not, individually or in the aggregate, reasonably be expected to result in
a material adverse change of Owner’s business or assets or financial condition;

(d)

Compliance Certificates.  Cilion shall have delivered to AE at the Closing a
certificate signed by a duly authorized officer of Cilion, dated the Closing
Date, confirming the matters set forth in Sections 9.2(a), (b) and (c);

(e)

Audited Financial Statements.  Cilion shall have delivered to AE its audited
consolidated financial statements for the year ended prior to the Exchange Date,
and its unaudited consolidated financial statements for subsequent quarters,
together with, in the case of the audited financial statements, a true and
correct copy of the report on such audited information by Cilion’s independent
accountants for such time periods and all auditors’ reports to management and
any management responses thereto.

(f)

At the time of conversion, Cilion shall be the sole owner of the Keyes Plant and
shall have retained the proceeds from any asset sales occurring after the date
hereof, net of Third Party and bank debt repayment and ordinary operating
costs.]

(g)

Cilion shall have not incurred additional indebtedness subsequent to the Lease
Commencement Date.

(h)

Cilion shall have not paid out cash dividends to its shareholders subsequent to
the Lease Commencement Date.

11.4

Registration Rights.  If AE at any time proposes to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Forms S-4 or S-8 and any similar successor
forms) (a

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“Piggyback Registration”), each such time it will give prompt written notice to
such effect to all Owner shareholders at least thirty (30) days prior to such
filing.  Upon the written request of any such Owner shareholder, received by AE
within twenty (20) days after the giving of any such notice by AE, to register
any of its Conversion Shares, AE will cause all Conversion Shares as to which
registration shall have been so requested to be included in the securities to be
covered by the Registration Statement proposed to be filed by AE.
 Notwithstanding the foregoing provisions, AE may withdraw any registration
statement referred to in this Section without thereby incurring any liability to
the Owner shareholders.  The right of the Owner shareholders to have their
Conversion Shares registered in a Piggyback registration shall terminate at the
earlier of (i) one (1) year following the Conversion Date, or (ii) as to any
Owner Shareholder, such earlier time at which all Conversion Shares held by such
Owner Shareholder (together with any Affiliate of the Owner Shareholder with
whom such Owner Shareholder must aggregate its sales under Rule 144) can be sold
in any three-month period without registration in compliance with Rule 144 of
the Securities Act.

11.5

Board of Directors Seats After Conversion. After conversion into AE shares as
provided herein, Eric A. McAfee and Laird Cagan shall enter into a voting
agreement to appoint two representatives of the Owner Shareholders to the AE
board of directors effective upon the Exchange Date.  

Section 12.

TERM AND TERMINATION.

12.1

Term.  The Term of this Agreement shall commence on the date hereof and shall
terminate (unless earlier terminated in accordance with this Section 12) upon
the expiration or earlier termination of the Lease in accordance with the terms
thereof.  Except as otherwise provided herein or as may be agreed by the Parties
hereto, no termination of this Agreement shall release any Party from any
liability to any other Party which at the time of such termination has already
accrued, nor affect in any way the survival of any right, duty or obligation of
any Party which is expressly stated elsewhere in this Agreement to survive the
termination hereof.  

12.2

Termination for Failure to Obtain Financing.  Owner may terminate this Agreement
immediately by providing written notice to AE in the event that the Project
Company has not received the AE Funds for the Repair and Retrofit Activities by
January 31, 2010, or if AE has not provided Owner with evidence of the AE Funds
being contributed to Project Company on or prior to January 31, 2010.

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 July 31, 2010.

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12.4

Change of ControlChange of Control.  Owner may terminate this Agreement
immediately by providing written notice to AE in the event that, prior to the AE
Funds having been received by the Project Company, there is a Change of Control
of Owner or Owner enters into an agreement to sell the Keyes Plant.

12.5

Event of Default.  Either Party may terminate this Agreement upon an Event of
Default caused by the other Party as provided for in Section 13 below.

12.6

Owner Financing Consent.  Either Party may terminate this Agreement immediately
by providing written notice to the other Party in the event that the lenders
comprising the Owner Financing have not consented to the transactions
contemplated by this Agreement and the Lease prior to the Lease Commencement
Date.

12.7

Effects of Termination.  Upon any such expiration or termination of this
Agreement or of the Lease, (i) all rights in the Keyes Plant and the Project
shall revert to Owner; (ii) Project Company shall transfer or caused to be
transferred (to the extent transferable) any and all Permits relating to the
Keyes Plant to Owner; (iii) AE and Project Company shall cease any activity or
operations with respect to the Keyes Plant; (iv) AE shall return the Praj Funds
to Owner (less any amounts expended in accordance with the terms of this
Agreement); and (v) all licenses hereunder shall terminate, including the Praj
License.  In addition to the foregoing, in the event Owner terminates this
Agreement pursuant to Section 12.3, Owner shall reimburse AE for all
out-of-pocket expenses incurred by or on behalf of AE in connection with the
Repair and Retrofit Activities (up to a maximum amount of one million six
hundred thousand dollars), plus interest on the expenses incurred at the rate of
eight percent per year.

Section 13.

EVENTS OF DEFAULT.  The occurrence and continuation of the following event at
any time during the term of this Agreement will constitute an event of default
of a Party (an “Event of Default”):

13.1

if the Party fails in any material respect to perform or comply with any
obligation in this Agreement, and such failure is not remedied within thirty
(30) days after the date the other Party has given written notice to the
defaulting Party of such failure;

13.2

the occurrence of an “Event of Default” triggered by a Party under the Lease.

13.3

the making of a general assignment by a Party for the benefit of its creditors,
the filing of a voluntary petition by such Party, or the filing of an

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involuntary petition by any of such Party’s creditors seeking the
rehabilitation, liquidation, or reorganization of such Party under any law
relating to bankruptcy, insolvency, or other relief of debtors and, in the case
of an involuntary action, the failure to remove or discharge the petition within
sixty (60) days of the filing; or

13.4

any representation or warranty made by a Party in this Agreement or in the Lease
shall prove to have been false or incorrect in any material respect when such
representation or warranty was made or given, and remains a misrepresentation or
breach of warranty which is materially adverse to the other Parties at the time
discovered.

Section 14.

INDEMNIFICATION  

14.1

By AE and the Project Company.  Except for Losses arising out of or resulting
from Owner Indemnitees’ gross negligence or willful misconduct, AE and the
Project Company shall, jointly and severally, defend, indemnify, and hold
harmless Owner, and its employees, agents, partners, Affiliates, shareholders,
directors, officers, and assigns (each an “Owner Indemnitee”), from and against
the following:

(a)

Losses arising from third-party claims for property damage or personal injury
(including emotional distress) that directly or indirectly arise out of or
result from any negligent, willful, reckless, or otherwise tortious act or
omission (including strict liability) during the performance of the Repair and
Retrofit Activities or operation of the Keyes Plant, by AE, the Project Company,
any subcontractor, or any of their respective Affiliates;

(b)

Losses that directly arise out of or result from (i) all claims for payment,
whether or not reduced to a lien or mechanics lien, filed by the Project
Company, AE or any of its Affiliates or subcontractors, or other persons
performing any portion of the Repair and Retrofit Activities; and (ii)
employers’ liability or workers’ compensation claims filed by any employees or
agents of AE, the Project Company or any of its subcontractors or Affiliates;  

(c)

Losses as a result of any claims by any Governmental Authority that directly
arise out of or result from the failure of AE or Project Company or any of its
Affiliates or subcontractors to comply with the terms and conditions of any
Legal Requirements;

(d)

Losses in connection with the operation of the Keyes Plant by AE or Project
Company, or any of their Affiliates or agents, including without limitation, any
Losses arising in connection with any alleged infringement of any

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intellectual property rights of Third Parties in connection with the operation
of the Keyes Plant by AE, the Project Company, or any of their agents or
Affiliates;

(e)

Losses arising in connection with the breach by AE or Project Company of any of
their representations, warranties, covenants or agreements contained herein;

(f)

Losses as a result of any claims by any Governmental Authority that arise out of
or result from the failure of Project Company or AE to pay, as and when due, all
taxes, duties, levies, assessments, tariffs, imposts, fees or charges of any
kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any Governmental
Authority for which AE or Project Company is obligated to pay pursuant to the
terms of this Agreement; and

(g)

all Losses, including claims for property damage, remedial action or personal
injury (including emotional distress), whether or not involving damage to the
Keyes Plant, that directly or indirectly arise out of or result from (i) the
use, storage, transportation, manufacture, processing or disposal whether or not
in compliance with Legal Requirements, of Hazardous Materials at the Keyes Plant
occurring after the Possession Date; and (ii) the presence or existence of or
contamination of the Keyes Plant, caused by the spill or release of Hazardous
Materials brought onto, or handled at, the Keyes Plant (excluding Owner),
occurring after the Possession Date.  

14.2

By Owner.  Except for Losses arising out of or resulting from AE Indemnitees’
gross negligence or willful misconduct, Owner shall defend, indemnify, and hold
harmless AE, AE Sub and the Project Company and their respective employees,
agents, partners, Affiliates, shareholders, directors, officers, and assigns
(each an “AE Indemnitee”) from and against the following:

(a)

Losses arising from third-party claims for property damage or personal injury
(including emotional distress) that directly or indirectly arise out of or
result from any negligent, reckless, or otherwise tortious act or omission
(including strict liability) by Owner prior to the Possession Date;

(b)

Losses that directly arise out of or result from (i) all claims for payment,
whether or not reduced to a lien or mechanics lien, filed by the Owner, or any
of its Affiliates or subcontractors, or other persons prior to the Possession
Date; and (ii) employers’ liability or workers’ compensation claims filed by any
employees of Owner or any of its subcontractors or Affiliates;  

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(c)

Losses arising in connection with the breach by Owner of any of its
representations, warranties, covenants or agreements contained herein;

(d)

Losses as a result of any claims by any Governmental Authority that arise out of
or result from the failure of Owner to pay, as and when due, all taxes, duties,
levies, assessments, tariffs, imposts, fees or charges of any kind (together
with any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any Governmental Authority for which
Owner is obligated to pay and for which AE is not required to reimburse Owner;
and

(e)

all Losses, including claims for property damage, remedial action or personal
injury (including emotional distress), whether or not involving damage to the
Keyes Plant, that directly or indirectly arise out of or result from (i) the
use, storage, transportation, manufacture, processing or disposal by or for the
benefit of the Owner whether or not in compliance with Legal Requirements, of
Hazardous Materials at the Keyes Plant occurring prior to the Possession Date;
and (ii) the presence or existence of or contamination of the Keyes Plant,
caused by the spill or release of Hazardous Materials brought onto, or handled
at, the Keyes Plant, occurring prior to the Possession Date.  

14.3

Claims for Indemnification.

(a)

A person entitled to indemnification under this Section 14 (an “Indemnified
Party”) shall give prompt written notification to the person from whom
indemnification is sought (the “Indemnifying Party”) of the commencement of any
action, suit or proceeding relating to a Third Party claim for which
indemnification may be sought or, if earlier, upon the assertion of any such
claim by a Third Party (it being understood and agreed, however, that the
failure by an Indemnified Party to give notice of a Third-Party claim as
provided in this Section 14 shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement except and only to the extent
that such Indemnifying Party is actually prejudiced as a result of such failure
to give notice).

(b)

Within thirty (30) days after delivery of such notification, the Indemnifying
Party may, upon written notice thereof to the Indemnified Party, assume control
of the defense of such action, suit, proceeding or claim with counsel reasonably
satisfactory to the Indemnified Party.  If the Indemnifying Party does not
assume control of such defense, the Indemnified Party shall control such
defense.  The Party not controlling such defense may participate therein at its
own expense; provided that if the Indemnifying Party assumes control of such

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defense and the Indemnified Party reasonably concludes, based on advice from
counsel, that the Indemnifying Party and the Indemnified Party have conflicting
interests with respect to such action, suit, proceeding or claim, the
Indemnifying Party shall be responsible for the reasonable fees and expenses of
counsel to the Indemnified Party solely in connection therewith; provided
further, however, that in no event shall the Indemnifying Party be responsible
for the fees and expenses of more than one counsel in any one jurisdiction for
all Indemnified Parties.

(c)

The Party controlling such defense shall keep the other Party advised of the
status of such action, suit, proceeding or claim and the defense thereof and
shall consider recommendations made by the other Party with respect thereto.

(d)

The Indemnified Party shall not agree to any settlement of such action, suit,
proceeding or claim without the prior written consent of the Indemnifying Party,
which shall not be unreasonably withheld.  The Indemnifying Party shall not
agree to any settlement of such action, suit, proceeding or claim or consent to
any judgment in respect thereof that does not include a complete and
unconditional release of the Indemnified Party from all liability with respect
thereto or that imposes any liability or obligation on the Indemnified Party
without the prior written consent of the Indemnified Party.

14.4

Survival of Indemnity Obligations.  Without limiting or in any way agreeing to
waive either Party’s right to make a claim at common law as permitted pursuant
to applicable law for contribution or indemnification with respect to
third-party claims, and notwithstanding any other provision in this Agreement to
the contrary, the indemnities set forth in this Article 14 shall survive for a
period expiring five (5) years following the termination of this Agreement.  All
claim notices must be delivered, if at all, to the applicable Party prior to the
expiration of such five (5) year period.  If any claim notice is made within
such five (5) year period, then the indemnifying period with respect to all
claims identified in such claim notice (and the indemnity obligation of the
Parties hereunder with respect to such claim) shall extend through the final,
non-appealable resolution of such claims.

Section 15.

MISCELLANEOUS.

15.1

Survival of Representations and Warranties.  The representations and warranties
and covenants of Owner and AE contained in this Agreement shall survive the
execution and delivery of this Agreement and continue for a period of one year.
 

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15.2

Fees and Expenses.  All costs and expenses incurred by AE in connection with
this Agreement and the consummation of the Transactions shall be paid by AE, all
costs and expenses incurred by the Project Company in connection with this
Agreement and the consummation of the Transactions shall be paid by the Project
Company, and all costs and expenses incurred by Owner in connection with this
Agreement and the consummation of the Transactions shall be paid by Owner.

15.3

Notices.  All notices and other communications hereunder shall be in writing and
shall be deemed given in accordance with the terms and the addresses set forth
in the Lease.

15.4

Counterparts.  This Agreement may be executed in one or more counterparts, each
of which shall be considered one and the same Agreement and shall become
effective when two or more counterparts have been signed by each of the Parties
and delivered to the other Parties.

15.5

Entire Agreement; No Third Party Beneficiaries.  This Agreement (including the
documents and the instruments referred to herein) and the Lease:  (a) constitute
the entire agreement between the Parties and supersede all prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter hereof, and (b) are not intended to confer upon any Person other
than the Parties hereto and thereto any rights or remedies hereunder.

15.6

Severability.  Any term or provision of this Agreement that is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.  If the final judgment of a court of competent
jurisdiction or other authority declares that any term or provision hereof is
invalid, void or unenforceable, the Parties agree that the court making such
determination shall have the power to reduce the scope, duration, area or
applicability of the term or provision, to delete specific words or phrases, or
to replace any invalid, void or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.

15.7

Assignment.  Neither this Agreement not any of the rights, interests or
obligations hereunder shall be assigned by any of the Parties hereto (whether by
operation of law or otherwise) without the prior written content of the other
Parties.  Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the Parties and their
respective successors and assigns,

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including any purchaser or other acquirer of Owner shares from an existing
holder as of the date of this Agreement.

15.8

Time of Essence.  Time is of the essence in this Agreement.

15.9

Attorney’s Fees.  In any action that a Party brings to enforce its rights under
this Lease, the prevailing Party shall be entitled to all of its costs plus
reasonable attorney fees to be fixed by the court. Those costs and attorney fees
will be considered a part of the judgment in that action.

15.10

Governing Law.  This Agreement shall be governed by and construed in accordance
with the laws of the State of California.

15.11

No Agency, Partnership or Joint Venture.  Nothing contained in this Agreement
will be deemed or construed by the Parties, or by any Third Party, as creating
the relationship of principal and agent, partnership, or joint venture by the AE
and Owner or the Project Company and Owner, as the case may be.

15.12

No Waiver.  No waiver of any default or breach under this Agreement will be
implied from any omission to take action on account of this Agreement,
regardless of any custom and practice or course of dealing.  No waiver will
affect any default other than the default specified in the waiver, and then the
waiver will be operative only for the time and to the extent stated in this
Agreement.  Waivers of any covenant will not be construed as a waiver of any
subsequent breach of the same covenant.  No waiver by either party of any
provision under this Agreement will be effective unless in writing and signed by
that Party.

15.13

Brokers.  Each Party represents and warrants to the other Parties that it has
had no dealings with any person, firm, broker or finder in connection with the
negotiation of this Agreement or the consummation of the transactions
contemplated hereby, and that no broker or other person, firm or entity is
entitled to any commission or finder’s fee in connection with said transactions.
 Each Party shall indemnify, protect, defend and hold the other party harmless
from and against any claims which may be asserted by any such unnamed broker,
finder or other similar party by reason of any dealings or actions of the
indemnifying party.  This indemnification shall survive the expiration or
earlier termination of this Agreement.

15.14

Further Assurances.  The Parties shall promptly sign all further commercially
reasonable documents necessary to accomplish the intent of this Agreement.

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IN WITNESS WHEREOF, the Parties hereto have caused this Project Agreement to be
duly executed as of the date first written above.

AE BIOFUELS, INC.

By:

_____/S/ Eric A. McAfee_____________

Name:

Eric A. McAfee

Title:

Chairman and Chief Executive Officer

CILION, INC.

By:

__/S/ Kevin H. Kruse__________

Name:

Kevin H. Kruse

Title:

Chairman and Chief Executive Officer

AE ADVANCED FUELS KEYES, INC.

By:

____/S/ Eric A. McAfee_____

Name:

Eric A. McAfee

Title:

Chairman and Chief Executive Officer

AE ADVANCED FUELS, INC.

By:

___/S/ Eric A. McAfee_________

Name:

Eric A. McAfee

Title:

Chairman and Chief Executive Officer