August
      7,
      2006

     

    Mr.
      Tim
      Morris

    Chief
      Executive Officer

    AMERICAN
      ETHANOL, INC.

    203
      N. La
      Salle St., Suite 2100

    Chicago,
      IL 60601

     

    Dear
      Mr.
      Morris,

    


    We
      are
      pleased that American Ethanol, Inc. (the “Company”)
      desires to engage Chadbourn Securities, Inc. (“Chadbourn”)
      as its
      nonexclusive placement agent and financial advisor to the Company (the
“Advisory
      Services”).
      We
      look forward to working with you and your management team, and have set forth
      below the agreed upon terms of our involvement. This agreement replaces in
      its
      entirety the Company’s previous agreement with Chadbourn, dated on or about
      February 1, 2006.

    


    1. Scope
      of Engagement 

     

    As
      discussed, we will undertake certain services on behalf of the Company,
      including: 

    


    (a)
       Identifying
      business opportunities for the Company within its strategy; 

    


    (b)
       Representing
      the Company within the finance and investment community and maintaining good
      relations and communications with shareholders introduced by Chadbourn to the
      Company; and

    


    (c) Identifying
      and assisting in the negotiation and placement of private equity for the Company
      (an “Equity
      Funding”),
      special purpose vehicle funding (a “SPV Funding”)
      and
      debt/mezzanine instruments (“Debt
      Funding”).

    


    2.
       Fees
      and Expenses. 

     

    For
      our
      services hereunder, the Company will pay to Chadbourn the following fees as
      earned and collected by the Company.

    


    	(a)  	
            Financing
              Advisory Services Originated by Chadbourn.
              In the event that Chadbourn or its subsidiary(s) directly originates
              or
              provides an accepted Equity Funding, SPV Funding or Debt Funding, the
              Company shall pay to Chadbourn from net proceeds received by the Company
              at closing(s) the following, minus any amounts paid by the Company
              to
              mutually approved intermediaries listed on Exhibit
              B
              (if any), attached hereto:

          


    


    	(i)  	
            An
              advisory fee equal to Seven Percent (7%) of the total net proceeds
              from
              Chadbourn-originated Equity Fundings received by the Company;
              

          


    	(ii)  	
            An
              additional unallocated expense reimbursement fee equal to One Percent
              (1%)
              of the total net proceeds from all Equity Fundings received by the
              Company;

          


    	(iii)  	
            Warrants
              equal to (Eight Percent) 8% of the number of shares sold in the Equity
              Offering. Such warrants should have a seven year maturity, an exercise
              price equal to the offering price of each respective offering by the
              Company, piggyback registration rights and a cashless exercise provision;
              and

          


    	(iv)  	
            An
              advisory fee subject to future negotiation for proceeds from
              Chadbourn-originated SPV Fundings or Debt Fundings received by the
              Company.

          


     

    
      Chadbourn
        Securities, Inc. • 10600 N. De Anza Blvd., Ste 250 • Cupertino, CA
        95014

      Phone:
        (408) 873-0400 • Fax (408) 904-6085

    

     

    
      
         

      

      
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    For
      clarification, the Company shall deduct from amounts payable to Chadbourn under
      this Section 2 any and all fees payable to minus any amounts paid by the Company
      to mutually approved intermediaries listed on Exhibit
      B
      attached
      hereto.

    


    3.
       Use
      of Information; Financing Matters. 

    


    	(a)  	
            The
              Company agrees to furnish or cause to be furnished to Chadbourn all
              necessary or appropriate information for use in its engagement and
              hereby
              represents and warrants that any information relating to the Company
              or
              transaction that is furnished to Chadbourn by or on behalf of the Company
              will be true and correct in all material respects and not misleading.
              The
              Company agrees that any information or advice rendered by Chadbourn
              or any
              of our representatives in connection with this engagement is for the
              confidential use of the Company only in its evaluation of a transaction
              and the Company will not, and will not permit any third party to, use
              it
              for any other purpose or disclose or otherwise refer to such advice
              or
              information, or to Chadbourn, in any manner without our prior written
              consent.

          


    


    	(b)  	
            Chadbourn
              recognizes and confirms that the Company, in acting pursuant to this
              engagement, may be providing material non-public information to Chadbourn,
              and that Chadbourn assumes responsibility that no such material non-public
              information shall be communicated or divulged to any other party without
              the express written consent of Company and that any recipient of such
              material non-public information shall not trade in the securities of
              the
              Company (or any public company intending to merge with or acquire the
              Company) until such information is either public or rendered
              moot.

          


    


    	(c)  	
            Each
              of the Company and Chadbourn agrees to conduct any offering and sale
              of
              securities in any transaction in accordance with applicable federal
              and
              state securities laws, and neither the Company nor Chadbourn, nor any
              person acting on behalf of either of them, will offer or sell any
              securities in a transaction by any form of general solicitation, general
              advertising, or by any other means that would be deemed a public offering
              under applicable law. Chadbourn has no obligation, express or implied,
              to
              purchase or underwrite any transaction or to itself provide any type
              of
              financing to the Company or be a party to any transaction, or to solicit
              investors outside the United States. 

          


    


    	(d)  	
            Chadbourn
              further acknowledges that by the very nature of its relationship with
              the
              Company it may, from time to time, have knowledge of or access to material
              non-public information (as such term is defined by the Securities Exchange
              Act of 1934, as amended). Chadbourn hereby agrees and covenants that:
              1)
              Chadbourn will not make any purchases or sales in the stock of the
              Company
              based on such information; 2) Chadbourn will utilize its commercially
              reasonable efforts to safeguard and prevent the dissemination of such
              information to third parties unless authorized in writing by the Company
              to do so as may be necessary in the performance of its services under
              this
              agreement; and 3) Chadbourn will not, in any way, utilize or otherwise
              include such information, in actual form or in substantive content,
              in its
              analysis for, preparation of or release of any Chadbourn literature
              or
              other communication(s) relating to the Company, including, but not
              limited
              to: research reports, press releases, publications, letters to investors
              and telephone or other personal communication(s) with potential or
              current
              investors, including Chadbourn related
              investors.

          


     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    4.
       Certain
      Acknowledgements. 

     

    The
      Company acknowledges that Chadbourn has been retained by the Company, and that
      the Company’s engagement of Chadbourn is as an independent contractor. Neither
      this engagement, nor the delivery of any advice in connection with this
      engagement, is intended to confer rights upon any persons not a party hereto
      (including security holders, employees or creditors of the Company) as against
      Chadbourn or our affiliates or their respective directors, officers, agents
      and
      employees. Upon prior written consent of the Company (which consent will not
      be
      unreasonably withheld), Chadbourn may, at our own expense, place announcements
      or advertisements in financial newspapers and journals describing its services
      hereunder. The Company acknowledges that Chadbourn may be a significant
      shareholder or retained advisor to entities that merge with the Company, and
      Chadbourn may make investments in or act as advisor to Companies that later
      become strategic partners or customers of the Company. Chadbourn shall advise
      Company of such relationships prior to initiation of any negotiations. Chadbourn
      represents and warrants to the Company that it is a registered broker/dealer
      any
      and all actions undertaken by Chadbourn hereunder are in full compliance with
      any and all applicable state and federal securities laws.

     

    5.
       Indemnity. 

     

    Chadbourn
      and the Company have agreed to the indemnification set forth in entered into
      a
      separate letter agreement attached hereto as Exhibit
      A,
      providing for the indemnification of Chadbourn by the Company and of the Company
      by Chadbourn in connection with Chadbourn’s engagement hereunder, the terms of
      which are incorporated into this agreement in their entirety.

    


    6.
       Term
      of Engagement. 

     

    Chadbourn’s
      engagement shall commence as of the date hereof and shall terminate (if not
      terminated earlier) upon the closing of the Company’s merger with a
      publicly-traded entity (the “Term”). Either party may terminate this agreement
      at any time, with or without cause by giving not less than 30 days written
      notice to the other party; provided, however, that no such termination will
      affect the matters set out in this section or sections 3, 4, 5, or 7, or in
      the
      separate letter agreement relating to indemnification. It is expressly agreed
      that following the expiration or termination of this agreement, Chadbourn shall
      be entitled to receive any fees as described above that have accrued prior
      to
      such expiration or termination but are unpaid, as well as reimbursement for
      expenses as set forth herein.

     

    7.
       Miscellaneous. 

     

    This
      agreement is governed by the laws of the State of California, without regard
      to
      conflicts of law principles, and will be binding upon and inure to the benefit
      of the Company and Chadbourn and their respective successors and assigns. Any
      controversy or claim arising out of or relating to this agreement, or the
      alleged breach thereof, or relating to the Chadbourn’s activities or
      remuneration under this agreement, shall be settled by binding arbitration
      in
      California, in accordance with the applicable rules of JAMS Endispute, and
      judgment on the award rendered by the arbitrator(s) shall be binding on the
      parties and may be entered in any court having jurisdiction as provided by
      Paragraph 14 herein. The provisions of Title 9 of Part 3 of the California
      Code
      of Civil Procedure, including section 1283.05, and successor statutes,
      permitting expanded discovery proceedings shall be applicable to all disputes
      that are arbitrated under this paragraph. This Agreement shall be governed
      by,
      construed and enforced in accordance with the laws of the State of California.
      The parties agree that Santa Clara County, California will be the venue of
      any
      dispute and will have jurisdiction over all parties. Neither this agreement
      nor
      any duties or obligations under this agreement may be assigned by Chadbourn
      without the prior written consent of the Company. This agreement may be executed
      in two or more counterparts, each of which shall be deemed to be an original,
      but all of which shall constitute one and the same agreement.

    


    
      
         

      

      
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    We
      are
      pleased to accept this engagement and look forward to working with you on this
      matter. Please confirm that the foregoing is in accordance with your
      understanding of our agreement by signing and returning to us a copy of this
      letter.

    

      
        	
                Very
                  truly yours,

              
	 	 
	
                CHADBOURN
                  SECURITIES, INC.

              
	 	 
	 	 
	 	 
	
                By:
                  

              	/s/
                Laird Q. Cagen
	 	
                Laird
                  Q. Cagan

              
	 	
                Managing
                  Director

              


      

    

     

    Accepted
      and agreed to as of the date set forth above:

    

      
        	
                AMERICAN
                  ETHANOL, INC., 

              
	
                a
                  California corporation

              
	 	 
	 	 
	
                By:

              	/s/
                Tim S. Morris
	 	
                Tim
                  S. Morris, CEO

              


      

    

     

    
      
         

      

      
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    EXHIBIT
      A

    


    The
      Company agrees to indemnify and hold harmless Chadbourn Securities Inc.
      (“Chadbourn”),
      together with its affiliates and their respective control persons, directors,
      officers, employees and agents, (“Indemnified
      Persons”),
      to
      the full extent lawful against any and all claims, losses, damages, liabilities,
      costs and expenses as incurred (including all reasonable fees and disbursements
      of counsel and all reasonable travel and other out-of-pocket expenses reasonably
      incurred in connection with the investigation of, preparation for and defense
      of
      any pending or threatened third-party claim, action, proceeding or investigation
      and any litigation or other proceeding arising therefrom, to which an
      Indemnified Person may become subject) (collectively, “Damages”)
      arising out of or related to any actual or proposed private placement or
      Chadbourn’s engagement hereunder; provided,
      however,
      that
      there shall be excluded from such indemnification any such portion of such
      Damages as are found in a final judgment by a court of competent jurisdiction
      to
      have resulted from the willful misconduct or gross negligence or breach of
      the
      engagement agreement (of even date herewith and incorporated herein by
      reference) on the part of the Indemnified Person, other than any action
      undertaken at the request or with the consent of the Company. The foregoing
      indemnification obligation is in addition to, and not in limitation of, any
      other rights Chadbourn may have, including but not limited to any right of
      contribution. In the event that the foregoing indemnity is unavailable or
      insufficient to hold harmless an Indemnified Person, then the Company shall
      contribute to amounts paid or payable by an Indemnified Person in respect of
      such Damages in such proportion as appropriately reflects the relative benefits
      received by it on the one hand and Chadbourn on the other. If applicable law
      does not permit allocation solely on the basis of benefits, then such
      contribution shall be made in such proportion as appropriately reflects both
      the
      relative benefits and relative fault of the parties and other relevant equitable
      considerations. The foregoing is subject to the limitation that in no event
      shall Chadbourn’s aggregate contributions in respect of Damages exceed the
      amount of fees actually received by Chadbourn pursuant to this Agreement. For
      purposes hereof, relative benefits to the Company and Chadbourn of the private
      placement or other similar transaction shall be deemed to be in the same
      proportion that the total value paid or received or contemplated to be paid
      or
      received by the Company and/or its security holders in connection with the
      private placement or other similar transaction bears to the fees paid to
      Chadbourn pursuant to its engagement in respect of such private placement.
       Chadbourn
      shall promptly notify the Company of any claim or threatened claim being
      asserted against Chadbourn which would give rise to an indemnification
      hereunder, and agrees that the Company shall have the right to participate
      in
      the defense of any such claim and, to the extent that the Company shall wish,
      to
      assume and control the defense thereof and shall pay as incurred the fees and
      disbursements of such counsel related to such proceeding. In any such
      proceeding, Chadbourn shall have the right to retain its own counsel reasonably
      satisfactory to the Company at the Company’s expense, it being understood that
      the Company shall not, in connection with any one such claim or action or
      separate but, substantially similar or related claims or actions in the same
      jurisdiction arising out of the same general allegations or circumstances,
      be
      liable for the reasonable fees and expenses of more than one separate firm
      of
      attorneys for all the Indemnified Persons. The Company will not enter into
      any
      waiver, release or settlement with respect to any threatened or pending claim,
      action, proceeding or investigation or settle any litigation arising therefrom
      in respect of which indemnification hereunder may be sought (whether or not
      Indemnified Persons are a formal party thereto) without the prior written
      consent of Chadbourn (which consent shall not be unreasonably withheld or
      delayed), unless such waiver, release or settlement includes an unconditional
      release of Chadbourn from any and all liability arising out of such threatened
      or pending claim, action, proceeding, investigation or litigation.



    
      
         

      

      
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    EXHIBIT
      B

    


    APPROVED
      INTERMEDIARIES

    


    
      	
              NAME

            	 	
              COMMISSION
                OR FEE

            
	 	 	 
	 	 	 
	 	 	 
	 	 	 


    

    


    
      
         

      

      
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