Document:

CALL OPTION AGREEMENT

                                     BETWEEN

                                    WANG CHEN

                                       AND

                                   LI SHAOQING

                               Date: June 9, 2008

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         THIS OPTION AGREEMENT (this "Agreement") is made on June 9, 2008 by and
among Li Shaoqing (the "Transferor") and Wang Chen (the "Transferee").

         The Transferor and the Transferee are collectively referred to as the
"Parties" and each of them as a "Party".

         Whereas, the Transferor is the majority shareholder of Long Sunny
Limited (the "Company"), a British Virgin Islands Company, which is one of the
registered shareholders of Shen Kun International Limited, a British Virgin
Islands Company, which intends to complete a reverse merger with Southern Sauce
Company, Inc., a public shell company, traded on the Over the Counter Bulletin
Board (the "Listed Company"), holding 30,000 shares of Ordinary Shares in the
Company as of the date of this Agreement.

         Whereas, the Transferee is to have a substantial role in the growth of
business of Southern Sauce Company, Inc., its subsidiaries, Shengkai (Tianjin)
Ceramic Valves Co., Ltd. ("WFOE") and Tianjin Shengkai Industrial Technology
Development Co., Ltd. ("Shengkai") (collectively with the Company and Shengkai
as the "Group"). In consideration of the Transferee's anticipated contributions
to the Group, the Transferor has agreed to grant to the Transferee, and the
Transferee has agreed to accept from the Transferor, an option (the "Option") to
purchase all of the ordinary shares of the Company currently held by the
Transferor (the "Option Shares") on the terms and subject to the conditions set
out in this Agreement.

         NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:

1.       DEFINITIONS

1.1.     Defined Terms : In this Agreement (including the Recitals, Exhibits and
         Schedules), unless the context otherwise requires, the following words
         and expressions shall have the following meanings:

         "Alternate Exercise Price" means an exercise price of $0.01 per share
         to be paid by the Transferee or his nominee to the Transferor in
         respect of the Option Shares issued to the Transferee or his nominee in
         the event that the Performance Targets (as defined herein) have not
         been met by the Group;

         "Business Day" means a day (other than Saturdays, Sundays and public
         holidays) on which banks are generally open for business in China;

         "China" or "PRC" means the People's Republic of China;

         "Completion" means the completion of the sale to and purchase by the
         Transferee of the Option Shares under this Agreement;

         "Completion Date" means the date falling seven (7) Business Days after
         the service of the Exercise Notice by the Transferee to the Transferor;

         "Distributions" means any cash proceeds arising from or in respect of,
         or in exchange for, or accruing to or in consequence of the Option
         Shares from the Effective Date to the Completion Date, including
         without limitation, the Dividends.

         "Dividends" means the dividends declared by the Company and accrued in
         respect of the Option Shares (whether or not such dividends shall have
         been paid and received by the Transferee or his nominee);

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         "Effective Date" means the date of this Agreement;

         "Exercise" means the exercise by the Transferee or his Nominee of the
         Option pursuant to the terms of this Agreement;

         "Exercise Notice" means the notice substantially in the form set out in
         Schedule A;

         "Exercise Price" means an exercise price of $0.001 per share of the
         Option Shares to be paid by the Transferee to the Transferor in respect
         of the Option Shares issued to such Transferee if the Group achieves
         the Performance Targets;

         "Nominee" means such person nominated by the Transferee in the Transfer
         Notice to be the transferee of the Option or Option Shares;

         "Option Effective Dates" has the meaning set forth in Clause 2.3;

         "Performance Targets" has the meaning set forth in Clause 3;

         "Performance Period" has the meaning set forth in Exhibit A to the
         Agreement;

         "Reverse Merger" means the transaction wherein the Listed Company will
         acquire 100% equity interest of Shen Kun International Limited and its
         subsidiaries and affiliates;

         "RMB" means the lawful currency of China;

         "Transfer Notice" means the notice substantially in the form set out in
         Schedule B;

         "US$" or "United States Dollar" means the lawful currency of the United
         States of America.

1.2.     Interpretation: Except to the extent that the context requires
         otherwise:

         1.2.1    words denoting the singular shall include the plural and vice
                  versa; words denoting any gender shall include all genders;
                  words denoting persons shall include firms and corporations
                  and vice versa;

         1.2.2    any reference to a statutory provision shall include such
                  provision and any regulations made in pursuance thereof as
                  from time to time modified or re-enacted whether before or
                  after the date of this Agreement and (so far as liability
                  thereunder may exist or can arise) shall include also any past
                  statutory provisions or regulations (as from time to time
                  modified or re-enacted) which such provisions or regulations
                  have directly or indirectly replaced;

         1.2.3    the words "written" and "in writing" include any means of
                  visible reproduction;

         1.2.4    any reference to "Clauses", "Recitals" and "Schedules" are to
                  be construed as references to clauses and recitals of, and
                  schedules to, this Agreement; and

         1.2.5    any reference to a time of day is a reference to China time
                  unless provided otherwise.

1.3.     Headings: The headings in this Agreement are inserted for convenience
         only and shall be ignored in construing this Agreement.

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2.       OPTION

2.1.     Option: In consideration of the contributions which the Transferee has
         made to the Group and his continuing commitment to the Group, the
         Transferor hereby irrevocably and unconditionally grants to the
         Transferee the Option for such Transferee to acquire from the
         Transferor, at the Exercise Price or the Alternative Exercise Price, at
         any time during the Exercise Period (defined below) any or all of the
         Option Shares, free from all claims, liens, charges, pledges,
         mortgages, trust, equities and other encumbrances, and with all rights
         attaching thereto on the Completion Date.

2.2.     Vesting Schedule: Subject to the terms and conditions hereto, the
         Option may be exercised, in whole or in part, in accordance with the
         following schedule:

         The Option Shares subject to the Option shall vest at the rate of
         one-seventh (1/7) per Performance Period.

2.3.     Exercise Period: Once the Reverse Merger has been completed or
         abandoned pursuant to the terms of the definitive agreement regarding
         the Reverse Merger, the Option shall be exercisable in accordance with
         and on the dates set forth in Exhibit A (the "Option Effective Dates").
         Subject to the vesting schedule set forth in Section 2.2 of this
         Agreement, the Option may be exercised by any Transferee or his Nominee
         at any time following the Option Effective Date ("Exercise Period").

2.4.     Nominees: The Transferee may, at any time during the Exercise Period,
         at his sole discretion, nominate one or more person(s) (each a
         "Nominee") to be the transferee(s) of whole or part of his/her Option,
         who shall hold and/or exercise the transferred Option on behalf of the
         Transferee.

2.5.     Exercise Notice: The Option may be exercised by the Transferee or his
         Nominee, in whole or in part, at any time during the Exercise Period,
         by serving an Exercise Notice on the Transferor.

2.6.     Exercise: The Transferor agrees that he shall, upon receipt of the
         Exercise Notice and payment of either the Exercise Price or the
         Alternative Exercise Price, depending on whether the Performance
         Targets have been met, take all necessary steps to cause the issuance
         of any and all of the Option Shares specified in the Exercise Notice to
         the Transferee or his Nominee, free from all claims, liens, charges,
         pledges, mortgages, trust, equities and other encumbrances, and with
         all rights now or hereafter attaching thereto. Notwithstanding the
         foregoing, the Exercise of the Option shall be further subject to PRC
         laws and regulations and the Transferee or his Nominee shall complete
         any and all approval or registration procedures (the "Approvals")
         regarding the exercise of his Option at PRC competent authorities in
         accordance with applicable PRC laws and regulations (if any).
         Furthermore, the Transferor agrees that in the event that the
         Transferee or his Nominee is unable to obtain the Approval due to
         reasons attributable to the then PRC laws, rules and/or policy, the
         Transferor shall coordinate with the Transferee or his Nominee and take
         viable alternatives for the best interests of the Transferee or his
         Nominee.

2.7.     Transfer Notice: In case that any Transferee transfers any or all of
         his Option to one or more Nominees in accordance with Clause 2.4 above,
         the Transferee shall serve a Transfer Notice on the Transferor.

2.8.     Transfer to Nominees: The Transferor agrees that he shall, upon receipt
         of the Transfer Notice, take all actions necessary to allow the Nominee
         to be entitled to any or all of the Options specified in the Transfer
         Notice.

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         Upon exercise by any Nominee of the transferred Option on behalf of the
         Transferee, the Transferee shall serve the Exercise Notice on the
         Transferor in his own name for the exercising Nominee. Upon receipt of
         such Exercise Option, the Transferor shall take necessary steps to
         cause the issuance of any and all of the relevant Option Shares
         specified in the Exercise Notice to such Nominee in the same manner as
         specified in Clause 2.6.

2.9.     Payment of Exercise Price: Upon Exercise of the Option in whole or in
         part, the Transferee or his Nominee shall pay the Exercise Price to the
         Transferor; or may elect a cashless exercise as set forth below.

2.10.    Cashless Exercise: In lieu of delivery of the Exercise Price in cash,
         the Transferee or his Nominee shall have the right, at his option, from
         time to time or times during the Exercise Period, satisfy his
         obligation to pay the Exercise Price through a "cashless exercise," in
         which the Transferee or his Nominee shall be entitled to have the
         Transferor's shares as determined as follows:

                                    X = Y [(A-B)/A]
                  where:
                                    X = the number of Transferor's shares to be
                                    transferred to the Transferee
                                    Y = the number of Transferor's shares with
                                    respect to which the Option is being
                                    exercised.
                                    A = the arithmetic average of the closing
                                    Prices for the five trading days immediately
                                    prior to (but not including) the exercise
                                    date.
                                    B = the Exercise Price.

2.11.    The Transferor's Obligation upon Exercise: The Transferor agrees that
         upon the Exercise of any Option by the Transferee (or his Nominee), he
         shall cause and procure the number of Option Shares provided in the
         Exercise Notice to be transferred to such exercising Transferee or his
         Nominee within seven (7) Business Days after the date of the Exercise
         Notice.

3.       PERFORMANCE TARGET AND CONDITION PRECEDENT

3.1.     The obligation of the Transferor to effect the Option and the transfer
         of the Option Shares at the Exercise Price to the Transferee or his
         Nominee upon his Exercise of the Option shall be subject to the
         fulfilment of the conditions (the "Performance Targets") set forth in
         Exhibit A hereto. In the event that the Group does not achieve the
         Performance Targets specified in Exhibit A, then the Transferee may
         exercise the Option at the Alternative Exercise Price on the date at
         which the Option would have otherwise been exercisable had the
         Performance Targets been met.

4.       INFORMATION, DISTRIBUTIONS AND ADJUSTMENTS

4.1.     Information: The Transferee shall be entitled to request from the
         Transferor at any time before the Completion, a copy of any information
         received from the Group which may be in the possession of the
         Transferor and, upon such request, the Transferor shall provide such
         information to the Transferee.

4.2.     Distributions: The Transferor agrees that the Transferee or his Nominee
         shall be entitled to all the Distributions in respect of his/her Option
         Shares. In the event that any such Distributions have been received by
         the Transferor for any reason, the Transferor shall, at the request of
         the relevant Transferee, pay an amount equivalent to the Distributions
         received by him/her to the Transferee or his Nominee at the time of the
         Option Exercise by the Transferee or his Nominee.

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4.3.     Adjustments: If, prior to the Completion, the Company shall effect any
         adjustment in its share capital (such as share split, share dividend,
         share combination or other similar acts), then the number of Option
         Shares to be issued to the Transferee upon Exercise shall be adjusted
         accordingly.

5.       COMPLETION

5.1.     Time and Venue: Completion of the sale and purchase of the Option
         Shares pursuant to the Exercise shall take place at such place decided
         by the Transferee or his Nominee on the Completion Date.

5.2.     Business at Completion: At Completion of each Exercise, all (but not
         part) of the following shall be transacted:

         5.2.1    the Transferee or his Nominee shall pay the Exercise Price to
                  the Transferor in considerations set forth in the Exercise
                  Notice ;

         5.2.2    the Transferor shall cause the Company to within seven (7)
                  Business Days after the date of Exercise Notice, deliver to
                  the Transferee or his Nominee the following documents and
                  cause the Company to take all corporate actions necessary to
                  give effect to such delivery:

                  (a)      a share certificate or share certificates in respect
                           of the number of the Option Shares exercised by the
                           Transferee or his Nominee;

                  (b)      a certified true copy of the register of members of
                           the Company updated to show the entry of the
                           Transferee or his Nominee as the holder of the Option
                           Shares so exercised; and

                  (c)      any other documents as the Transferee or his Nominee
                           may reasonably believe necessary to give effect to
                           the issuance of the exercised Option Shares.

6.       CONFIDENTIALITY

         The transaction contemplated hereunder and any information exchanged
         between the Parties pursuant to this Agreement will be held in complete
         and strict confidence by the concerned Parties and their respective
         advisors, and will not be disclosed to any person except: (i) to the
         Parties' respective officers, directors, employees, agents,
         representatives, advisors, counsel and consultants that reasonably
         require such information and who agree to comply with the obligation of
         non-disclosure pursuant to this Agreement; (ii) with the express prior
         written consent of the other Party; or (iii) as may be required to
         comply with any applicable law, order, regulation or ruling, or an
         order, request or direction of a government agency; provided, however,
         that the foregoing shall not apply to information that: (1) was known
         to the receiving Party prior to its first receipt from the other Party;
         (2) becomes a matter of public knowledge without the fault of the
         receiving Party; or (3) is lawfully received by the Party from a third
         person with no restrictions on its further dissemination.

7.       TRANSFEROR'S UNDERTAKINGS

7.1.     Without the prior written consent of the Transferee, the Transferor
         shall vote his shares in the Company such that the Company shall not,
         (i) issue or create any new shares, equity, registered capital,

<PAGE>

         ownership interest, or equity-linked securities, or any options or
         warrants that are directly convertible into, or exercisable or
         exchangeable for, shares, equity, registered capital, ownership
         interest, or equity-linked securities of the Company, or other similar
         equivalent arrangements, (ii) alter the shareholding structure of the
         Company, (iii) cancel or otherwise alter the Option Shares, (iv) amend
         the register of members or the memorandum and articles of association
         of the Company, (v) liquidate or wind up the Company, (vi) sell,
         transfer, assign, hypothecate or otherwise reduce the value of any
         assets held by the Company, including but without limitation, any and
         all shares in the Listed Company or (vi) act or omit to act in such a
         way that would be detrimental to the interest of the Transferee in the
         Option Shares. The Transferor shall cause the Company to disclose to
         the Transferee true copies of all the financial, legal and commercial
         documents of the Company and the resolutions of the shareholders and
         the board of directors.

7.2.     Without the prior written consent of the Transferee, the Transferor
         shall not transfer, assign, pledge, hypothecate or vest any option on
         his share(s) in the Company to any third party.

8.       MISCELLANEOUS

8.1.     Indulgence, Waiver Etc: No failure on the part of any Party to exercise
         and no delay on the part of such Party in exercising any right
         hereunder will operate as a release or waiver thereof, nor will any
         single or partial exercise of any right under this Agreement preclude
         any other or further exercise of it or any other right or remedy.

8.2.     Effective Date and Continuing Effect of Agreement: This Agreement shall
         take effect from the Effective Date. All provisions of this Agreement
         shall not, so far as they have not been performed at Completion, be in
         any respect extinguished or affected by Completion or by any other
         event or matter whatsoever and shall continue in full force and effect
         so far as they are capable of being performed or observed, except in
         respect of those matters then already performed.

8.3.     Successors and Assigns: This Agreement shall be binding on and shall
         ensure for the benefit of each of the Parties' successors and permitted
         assigns. Any reference in this Agreement to any of the Parties shall be
         construed accordingly.

8.4.     Further Assurance: At any time after the date of this Agreement, each
         of the Parties shall, and shall use its best endeavors to procure that
         any necessary third party shall, execute such documents and do such
         acts and things as any other Party may reasonably require for the
         purpose of giving to such other Party the full benefit of all the
         provisions of this Agreement.

8.5.     Remedies: No remedy conferred by any of the provisions of this
         Agreement is intended to be exclusive of any other remedy which is
         otherwise available at law, in equity, by statute or otherwise, and
         each and every other remedy shall be cumulative and shall be in
         addition to every other remedy given hereunder or now or hereafter
         existing at law, in equity, by statute or otherwise. The election of
         any one or more of such remedies by any Party shall not constitute a
         waiver by such Party of the right to pursue any other available
         remedies.

8.6.     Severability of Provisions: If any provision of this Agreement is held
         to be illegal, invalid or unenforceable in whole or in part in any
         jurisdiction, this Agreement shall, as to such jurisdiction, continue
         to be valid as to its other provisions and the remainder of the
         affected provision; and the legality, validity and enforceability of
         such provision in any other jurisdiction shall be unaffected.

8.7.     Governing Law: This Agreement shall be governed by, and construed in
         accordance with, the laws of the British Virgin Islands, without
         reference to any conflict of laws principle that would cause the
         application of the laws of any jurisdiction other than the British
         Virgin Islands.

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8.8.     Dispute Resolution: In the event of any dispute, claim or difference
         (the "Dispute") between any Parties arising out of or in connection
         with this Agreement, the Dispute shall be resolved in accordance with
         the following:

         (a)      Negotiation between Parties; Mediations. The Parties agree to
                  negotiate in good faith to resolve any Dispute. If the
                  negotiations do not resolve the Dispute to the reasonable
                  satisfaction of all parties within thirty (30) days,
                  subsection (b) below shall apply.

         (b)      Arbitration. In the event the Parties are unable to settle a
                  Dispute in accordance with subsection (a) above, such Dispute
                  shall be referred to and finally settled by arbitration at
                  Hong Kong International Arbitration Centre in accordance with
                  the UNCITRAL Arbitration Rules (the "UNCITRAL Rules") in
                  effect, which rules are deemed to be incorporated by reference
                  into this subsection (b). The arbitration tribunal shall
                  consist of three arbitrators to be appointed according to the
                  UNCITRAL Rules. The language of the arbitration shall be
                  English.

8.9.     Counterparts: This Agreement may be signed in any number of
         counterparts, all of which taken together shall constitute one and the
         same instrument. Any Party hereto may enter into this Agreement by
         signing any such counterpart.

                            [SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF the Parties hereto have executed this Agreement on the date
first above written.

The Transferor

By: /s/ Li Shaoqing
    -----------------------------
    Li Shaoqing

The Transferee

By: /s/ Wang Chen
    -----------------------------
    Wang Chen

                    [SIGNATURE PAGE TO CALL OPTION AGREEMENT]

<PAGE>

                                    EXHIBIT A

                               PERFORMANCE TARGETS

         A. The Group shall have generated a gross revenue of at least RMB
1,500,000 per month during the period commencing June 1, 2008 through December
31, 2008 (each monthly period constituting a "Performance Period and
collectively, the "Performance Periods").

         B. The Option Effective Date for each Performance Period shall be that
date that is forty five (45) days following the last day of each such
Performance Period.AE
      BIOFUELS, INC.

    PARKASH
      P. AHUJA EXECUTIVE EMPLOYMENT AGREEMENT

    

    JUNE
      17, 2008

     

    This
      Agreement is made by and between AE Biofuels, Inc., a Nevada corporation (the
      “Company”), and Parkash P. Ahuja (“Executive”) to be effective as of June 17,
      2008 (the “Effective Date”).

     

    1. Duties
      and Scope of Employment.

     

     

    (a) Position;
      Employment Commencement Date; Duties.
      Executive’s employment with the Company pursuant to this Agreement is effective
      as of June 17, 2008 (the “Employment Commencement Date”). On and after the
      Employment Commencement Date, the Company shall retain the Executive as
Chief
      Operating Officer
      reporting to the Chief Executive Officer and President of the Company.
 During
      the Employment Term (as defined in section 2 herein), Executive shall render
      such business and professional services in the performance of his duties as
      are
      consistent with Executive’s position within the Company, and as shall reasonably
      be assigned to him by the Chief Executive Officer and President.

     

    (b) Obligations.
      During
      the Employment Term and as consideration for the compensation set forth herein,
      Executive shall devote his full business efforts and time during normal business
      hours to the Company. During the Employment Term the Executive agrees not to
      engage in any other employment, occupation or consulting activity for any direct
      or indirect remuneration without the prior approval of the Chief Executive
      Officer; provided, however, that Executive may serve in any capacity with any
      civic, educational or charitable organization.

     

    2. Employment
      Term.
      It is
      intended that the employment arrangement contemplated by this Agreement shall
      continue until the third anniversary of the Effective Date (such period being
      referred to herein as the “Employment Term”). Notwithstanding the foregoing, the
      parties agree that neither this Agreement nor any provision herein is intended
      to guarantee the continuation of Executive’s employment for the duration of the
      Employment Term. In the event that Executive’s employment with the Company
      terminates prior to the expiration of the Employment Term for any reason, the
      parties agree that Executive shall be entitled to receive only those benefits
      that are expressly provided by this Agreement in such circumstances. Subject
      to
      Section 6(d)(ix), Executive may terminate his employment for any reason without
      notice and without penalty.

     

    3. Employee
      Benefits.
      During
      the Employment Term, Executive shall be eligible to participate in all employee
      and fringe benefit plans maintained by the Company (both currently and as may
      be
      made available from time to time) that are applicable to other senior management
      to the full extent provided for under those plans for the position held by
      the
      Executive.

     

    4. Vacation/Personal
      Days.
      During
      the Employment Term, Executive shall have four weeks of combined paid vacation
      and personal days per year. Accrual and use of vacation time shall be governed
      by the Company’s employee handbook as in effect from time to time. In the event
      of termination for any reason, any accrued unused vacation time shall be paid
      in
      accordance with the Company’s employee handbook.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5. Expenses.
      While
      Executive is employed during the Employment Term, the Company will reimburse
      Executive for reasonable travel, entertainment or other expenses incurred by
      Executive in the furtherance of or in connection with the performance of
      Executive's duties hereunder, in accordance with the Company's expense
      reimbursement policy as in effect from time to time.

     

    6. Compensation.

     

    (a) Base
      Salary.
      While
      employed by the Company, the Company shall pay the Executive as compensation
      for
      his services a base salary at the annualized rate of One Hundred Eighty Thousand
      Dollars ($180,000) per year (the “Base Salary”). Such salary shall be paid
      periodically in accordance with normal Company payroll practices and subject
      to
      required withholding.

     

    (b) Bonus.
      Executive shall receive a signing bonus of $30,000, and shall be entitled to
      receive an annual bonus (the “Bonus”) of up to $120,000 based upon Executive’s
      performance and the Company’s attainment of objectives established by the
      Compensation Committee of the Board. The Bonus for year 2008 shall be 50% of
      the
      annual Bonus thereafter. The Bonus shall be paid 50% at March 31st
      and 50%
      at June 30th of the year following the year in which the Bonus is earned. Except
      as permitted under Section 7, Executive must be employed by the Company during
      the entire applicable bonus period for the payment of the Bonus. With respect
      to
      any subjective milestones, the determination of whether Executive has attained
      the milestones for the Bonus shall be reasonably determined by the Compensation
      Committee.

     

    (c) Options.
      The
      Company shall recommend to the Compensation Committee of the Board of Directors
      of the Company that it grant Executive an option to purchase shares of common
      stock of the Company in accordance with the Company’s policies and procedures as
      they exist from time to time. The terms, including vesting, of any stock option
      granted to Executive shall be determined by the Compensation Committee of the
      Company’s Board of Directors and shall be governed by the relevant Stock Plan
      and Stock Option Agreement entered into between the Company and the
      Executive.

     

    (d) Severance.
      During
      the first ninety days after the date hereof, the terms of this section 6(d)
      shall not apply.

     

    (i) Involuntary
      Termination Other Than for Cause; Constructive Termination on or Following
      Change of Control.
      If, on
      or following a Change of Control of the Company (as defined in Section 6(v)
      below), Executive’s employment with the Company is Constructively Terminated or
      involuntarily terminated by the Company other than for Cause, Executive’s death,
      or Executive’s Total Disability, then, subject to Executive executing and not
      revoking a standard form of mutual release of claims with the Company, the
      Executive shall receive, in addition to any other amounts due and owing
      hereunder: a) continued salary payments for three months of Base Salary; b)
      immediate vesting of 50% of any remaining unvested Option; and c) the medical
      benefits described in subsection 6(d)(iii) below.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (ii) Involuntary
      Termination Other Than for Cause; Constructive Termination Prior to Change
      of
      Control.
      If,
      prior to a Change of Control, Executive’s employment with the Company is
      Constructively Terminated or involuntarily terminated by the Company other
      than
      for Cause (as defined below), Executive’s death, or Executive’s Total
      Disability, then, subject to Executive executing and not revoking a standard
      form of mutual release of claims with the Company,
      the
      Executive shall receive, in addition to any other amounts due and owing
      hereunder: a) continued salary payments for three month’s of base salary after
      termination, less applicable withholding; b) immediate vesting of 25% of any
      remaining unvested option; and c) the medical benefits described in subsection
      6(d)(iii) below.

     

    (iii) In
      addition to the severance payments and vesting acceleration set forth in
      subsections 6(d)(i) and 6(d)(ii) above, Executive shall receive at the Company’s
      expense 100% of Company-paid health, dental and vision insurance benefits at
      the
      same level of coverage as was provided to Executive immediately prior to the
      termination of Executive’s employment with the Company (“Company-Paid
      Coverage”). If such coverage included Executive’s dependents immediately prior
      to Executive’s termination, such dependents shall also be covered at the
      Company’s expense. Company-Paid Coverage shall continue until the earlier of (i)
      3 months following the date of the termination of Executive’s employment (the
“Benefits Termination Date”), or (ii) the date upon which Executive or
      Executive’s dependents become covered under another employer’s group health,
      dental and vision insurance benefit plans.

     

    (iv) Cause
      Definition.
      For the
      purposes of this Agreement, “Cause” means (1) 
      Executive’s material, willful and continuing breach of his obligations to the
      Company set forth in the employment agreement after thirty (30) days
      written notice from the Company specifying the nature of Executive’s breach and
      demanding that such breach be remedied (unless such breach by its nature cannot
      be cured, in which case notice and an opportunity to cure shall not be
      required); (2) Executive’s conviction of a felony that is injurious to the
      Company or its business; or (3) act or acts of dishonesty by Executive that
      are materially injurious to the Company or its business.

     

    (v) Constructive
      Termination Definition.
      For the
      purposes of this Agreement,
      “Constructive Termination” means, without Executive’s written consent, (1) a
      material reduction in Executive’s salary or benefits; provided, however, that a
      reduction in Executive’s salary or benefits will not constitute a Constructive
      Termination if it is a part of and proportional to a reduction in salary or
      benefits of the Company’s executive staff as a whole, (ii) a material diminution
      of Executive’s duties, authority or responsibilities as in effect immediately
      prior to such diminution.

     

    (vi) Change
      of Control Definition.
      For the
      purposes of this Agreement, “Change of Control” means, in one or a series of
      transactions: (1) a reorganization or merger of the Company with or into
      any other Company which will result in the Company’s shareholders immediately
      prior to such transaction not holding, as a result of such transaction, at
      least
      50% of the voting power of the surviving or continuing entity or the entity
      controlling the surviving or continuing entity; (2) a sale of all or
      substantially all of the assets of the Company which will result in the
      Company’s shareholders immediately prior to such sale not holding, as a result
      of such sale, at least 50% of the voting power of the purchasing entity;
      (3) a change in the majority of the Board not approved by at least
      two-thirds of the Company’s directors in office prior to such change; or
      (4) the adoption of any plan of liquidation providing for the distribution
      of all or substantially all of the Company’s assets.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (vii) Total
      Disability Definition.
      For the
      purposes of this Agreement, “Total Disability” shall mean Executive’s mental or
      physical impairment which has or is likely to prevent Executive from performing
      the responsibilities and duties of his position for three (3) months or more
      in
      the aggregate during any six (6) month period. Any question as to the existence
      or extent of Executive’s disability upon which the Executive and the Company
      cannot agree shall be resolved by a qualified independent physician who is
      an
      acknowledged expert in the area of the mental or physical impairment, selected
      in good faith by the Board and Executive (or his personal
      administrator).

     

    (viii) No
      Mitigation.
      Except
      as specifically provided herein, the Executive shall not be required to mitigate
      the value of any severance benefits contemplated by this Agreement, nor shall
      any such benefits be reduced by any earnings or benefits that the Executive may
      receive from any other source.

     

    (ix) Voluntary
      Termination other than pursuant to a Constructive Termination; Involuntary
      Termination for Cause.
      If
      during the Employment Term the Executive's employment is terminated by the
      Company for Cause, or by Executive for any reason other than death, Total
      Disability or pursuant to a Constructive Termination, then all further vesting
      of any share option, restricted share award or other Company equity compensation
      held by Executive will cease immediately (however, Executive shall be permitted
      to exercise vested options for the time period specified in his option
      agreements and he shall retain all vested restricted shares) and all payments
      of
      compensation by the Company to Executive hereunder will terminate immediately
      (except as to amounts already earned, including, without limitation, any amounts
      owed under Section 4).

     

    (x) Involuntary
      Termination on Death.
      If
      during the Employment Term the Executive's employment is terminated by the
      Company as a result of Executive’s death (specifically excluding suicide), then
      25% of unvested Options and other equity awards from the Company then held
      by
      Executive shall immediately accelerate, or if Executive is then holding unvested
      shares, the Company’s right to repurchase the then-unvested shares under each
      such equity award shall lapse, with respect to 25% of the shares under each
      such
      award.

     

    (xi) Assignment.
      This
      Agreement shall be binding upon and inure to the benefit of (a) the heirs,
      beneficiaries, executors and legal representatives of Executive upon Executive’s
      death and (b) any successor of the Company. Any such successor of the
      Company shall be deemed substituted for the Company under the terms of this
      Agreement for all purposes. As used herein, “successor” shall include any
      person, firm, corporation or other business entity which at any time, whether
      by
      purchase, merger or otherwise, directly or indirectly acquires all or
      substantially all of the assets or business of the Company.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    7. Notices.
      All
      notices, requests, demands and other communications called for hereunder shall
      be in writing and shall be deemed given if (i) delivered personally or by
      facsimile, (ii) one (1) day after being sent by Federal Express or a
      similar commercial overnight service, or (iii) three (3) days after being
      mailed by registered or certified mail, return receipt requested, prepaid and
      addressed to the parties or their successors in interest at the following
      addresses, or at such other addresses as the parties may designate by written
      notice in the manner aforesaid: 

    

    
      	
            	If
              to the Company:	
              AE
                Biofuels, Inc.

              
                Attn:
                  Eric McAfee, Chairman/CEO

                20400
                  Stevens Creek Blvd., Suite 700

                Cupertino,
                  CA 95014

              

            

    

    
      
        

        
          	
                	If
                  to Executive: 	
                  Parkash
                    P. Ahuja

                  770
                    Jordan Ave.

                  Los
                    Altos, CA
                    94022

                

        

      

    

     

    or
      at the
      last residential address known by the Company.

    

    8. Proprietary
      Information Agreement.
      Executive agrees to enter into the Company’s standard Employment, Confidential
      Information and Invention Assignment Agreement (the “Proprietary Information
      Agreement”).

     

    9. Entire
      Agreement.
      This
      Agreement, the Option agreement, the Restricted Share Repurchase Agreement
      (if
      applicable), the employee benefit plans referred to herein and the Proprietary
      Information Agreement represent the entire agreement and understanding between
      the Company and Executive concerning Executive’s employment relationship with
      the Company, and supersede and replace any and all prior agreements and
      understandings concerning Executive’s employment relationship with the
      Company.

     

    10. No
      Oral Modification, Cancellation or Discharge.
      This
      Agreement may only be amended, canceled or discharged in writing signed by
      Executive and the Chief Executive Officer, the Chairman of the Board or a duly
      authorized representative of the majority of the members of the
      Board.

     

    11. Withholding.
      The
      Company shall be entitled to withhold, or cause to be withheld, from payment
      any
      amount of withholding taxes required by law with respect to payments made to
      Executive in connection with his employment hereunder.

     

    12. Governing
      Law.
      This
      Agreement shall be governed by the laws of the State of California without
      reference to rules relating to conflict of law.

     

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        5

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of June 17,
      2008 at Cupertino, California:

     

    AE
      BIOFUELS, INC.:

    

    

    /s/
      Eric
      McAfee                         
               

    Eric
      McAfee

    Chairman/CEO

    

    Date:
      June 17, 2008

    

    EXECUTIVE:

    

    
      /s/
        Parkash
        Ahuja                                     

      Parkash
        Ahuja

    

    

    Date:
      June 17, 2008

    

    
      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

    

    

    ACKNOWLEDGEMENT
      OF RECEIPT OF STOCK OPTION

    

    On
      June
      17, 2008, the Compensation Committee of the Board of Directors of AE Biofuels,
      Inc. approved the grant to the undersigned of an option to purchase 480,000
      shares of common stock of AE Biofuels, Inc. (the “Option”) at the exercise price
      of $3.70 per share, which was equal to the last sale price of one share of
      the
      Company’s common stock as reported on the Over-the-Counter Bulletin Board on
      July 17, 2008.

    

    The
      Option is exercisable, in whole or in part, according to the following vesting
      schedule:

    

    40,000
      shares subject to the Option vest and become exercisable on September 30, 2008
      and an additional 40,000 shares subject to the Option vest and become
      exercisable on the last day of each calendar quarter thereafter until fully
      vested. The Option, to the extent not exercised, shall expire on June 16,
      2013.

    

    The
      undersigned hereby acknowledges receipt of the foregoing Option and hereby
      acknowledges that as of the date hereof there are no other agreements or
      understandings, whether oral or in writing, between the Executive and the
      Company with respect to the grant of any stock options, restricted stock awards,
      restricted stock units, stock appreciation rights, performance units,
      performance shares or any other similar right in or with respect to the shares
      of the Company.

    

    ACKNOWLEDGED
      AND AGREED

    

    

    /s/
      Parkash
      Ahuja                                     

    Parkash
      Ahuja

    

    Dated:
      June 17, 2008

     

    
      
        
        

      

      
        7

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