8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 19, 2009

AE BIOFUELS, INC.

(Exact name of registrant as specified in its charter)

^{______________}

Nevada	000-51354	26-1407544
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

20400 Stevens Creek Blvd., Suite 700

Cupertino, California 95014

(Address of Principal Executive Office) (Zip Code)

 (408) 213-0940

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01

Entry into a Material Definitive Agreement.

Amendment and Limited Waiver to Note and Warrant Purchase Agreement with Third Eye Capital Corporation

On December 19, 2009, AE Biofuels, Inc. (the “Company”) entered into an Amendment and Limited Waiver (the “Amendment”) to the Note and Warrant Purchase Agreement dated as of May 16, 2008 (the “Note”) with Third Eye Capital Corporation (“Agent”). The Note had an original principal amount of $5,000,000 and was due and payable on May 15, 2009.  On August 11, 2009, the Company received a notice of default and a demand for payment from the Agent. The Amendment waives all defaults and extends the maturity date of the Note to June 30, 2010. As of the effective date of the Amendment, the principal balance and all accrued and unpaid interest and fees outsta nding on the Note was $5,979,558.

The Company has agreed to pay fees of $300,000 in consideration for the waiver of covenant defaults and an extension and amendment fee of $350,000.  In addition, the Company has agreed that beginning at the time the Company consummates an equity financing, it will pay to the Agent on a monthly basis a minimum of $100,000. All payments to the Agent will go first to all unpaid fees and expenses of Agent, then to accrued and unpaid interest on the Note and then to unpaid principal. The waiver fee and the extension and amendment fee will be added to the outstanding principal amount on the Note.

In connection with the Amendment, the Company has entered into an Assignment of Proceeds Agreement (the “Assignment Agreement”) with Agent pursuant to which the Company has agreed to pay to Agent fifty percent (50%) of all dividends, cash royalties and all other proceeds  received from either AE Advanced Fuels, Inc. or AE Advanced Fuels Keyes, Inc., its wholly owned subsidiaries.

In addition, AE Advanced Fuels Keyes, Inc. has signed a Guaranty Agreement which guarantees the Company’s obligations under the Assignment of Proceeds Agreement.

This description of the Amendment, Assignment Agreement and the Guaranty Agreement is not complete and is qualified in its entirety by reference to the text of the three agreements, which are attached hereto as Exhibit 10.1, 10.2 and 10.3 and are incorporated herein by reference.

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
10.1*	Amendment No. 4 and Limited Waiver to Note and Warrant Purchase Agreement dated December 10, 2009, between AE Biofuels, Inc. and Third Eye Capital Corporation
10.2*	Assignment of Proceeds Agreement dated as of December 10, 2009, between AE Biofuels, Inc. and Third Eye Capital Corporation
10.3	Guaranty Agreement dated as of December 10, 2009, between AE Advanced Fuels Keyes, Inc. and Third Eye Capital Corporation

———————

*

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

AE Biofuels, Inc.
By:	/s/ Scott A. Janssen
	Scott A. Janssen  Chief Financial Officer

Date:  December 21, 2009

EXHIBIT INDEX

Exhibit No.	Description
10.1*	Amendment No. 4 and Limited Waiver to Note and Warrant Purchase Agreement dated December 10, 2009, between AE Biofuels, Inc. and Third Eye Capital Corporation
10.2*	Assignment of Proceeds Agreement dated as of December 10, 2009, between AE Biofuels, Inc. and Third Eye Capital Corporation
10.3	Guaranty Agreement dated as of December 10, 2009, between AE Advanced Fuels Keyes, Inc. and Third Eye Capital Corporation

———————

*

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

EX-10.1

Exhibit 10.1

*

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

AMENDMENT NO. 4 AND LIMITED WAIVER

TO NOTE AND WARRANT PURCHASE AGREEMENT

This Amendment No. 4 and Limited Waiver to Note and Warrant Purchase Agreement (the "Amendment"), dated as of December 10, 2009 is between AE BIOFUELS, INC., a Nevada corporation (the “Company”) and THIRD EYE CAPITAL CORPORATION, an Ontario corporation, as agent (“Agent”).

RECITALS

A.

The Company, Agent and the Purchasers named therein entered into a certain Note and Warrant Purchase Agreement, dated as of May 16, 2008, as amended by that certain Amendment No. 1 to Note and Warrant Purchase Agreement, dated as of May 28, 2008 between the Company and Agent, and as further amended by that certain Amendment No. 2 and Limited Waiver to Note and Warrant Purchase Agreement, dated as of July 23, 2008 between the Company and Agent (as the same may be further amended, restated, supplemented, revised or replaced from time to time, the “Agreement”).  Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement.

B.

The Company executed an Amendment No. 3 and Limited Waiver to Note and Warrant Purchase Agreement dated March 31, 2009; however, the Company failed to satisfy the conditions precedent to the effectiveness of such amendment and such amendment is hereby deemed null and void.

C.

The Company has requested and the Agent and Purchasers have agreed to, among other things, extend the maturity date for the Note and waive certain Events of Default which have occurred and are continuing, but only to the extent and subject to the limitations set forth in this Amendment and without prejudice to the rights of Agent or any Purchasers.

D.

The Company has *

AGREEMENT

SECTION 1.

Reaffirmation of Indebtedness.  The Company hereby confirms that as of the date of this Amendment the outstanding principal balance of the Notes and all accrued and unpaid interest thereon is $5,979,557.80.

SECTION 2.

Amendments.  As of the date hereof, the following sections of the Agreement shall be and hereby are amended as follows:

(A)

Recitals Part of Agreement.  The foregoing recitals are hereby incorporated into and made a part of this Agreement, including all defined terms referenced therein.

(B)

Section 4.2 (Payment of Interest).  Section 4.2 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

“4.2

Payment of Principal and Interest.  Commencing 15 days after the Initial Closing and on the 10th day of each month thereafter, the Company shall pay to the Agent the greater of (i) $100,000, and (ii) the Assigned Proceeds (as defined in that certain Assignment of Proceeds Agreement, dated as of December 10, 2009 between the Company and the Agent) received by the Company from the Specified Subsidiary and/or AE Advanced Fuels Keyes, Inc, a wholly owned subsidiary of AE Biofuels (“Project Company”).  Interest shall accrue on any principal payment due under this Note and, to the extent permitted by applicable law, on any interest that has not been paid on the date on which it is due and payable until such time as payment therefor is actually delivered to the holder of the Note.

(C)

Section 4.3 (Payment at Maturity).  Section 4.3 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

“4.3

Payment at Maturity.  On June 30, 2010 (the “Maturity Date”), the Company will pay the entire then outstanding principal amount of the Notes together with all accrued and unpaid interest thereon.”

(D)

Section 4.4 (Optional Prepayments).  Section 4.4 of the Agreement is deleted in its entirety and amended by inserting the following in its place

“4.4

Optional Prepayments.  The Company may, at any time and from time to time, prepay all or any portion of the outstanding principal amount of the Note.  In addition, the Company has the option to prepay any interest pursuant to Section 4.2. If more than one Note is outstanding, such prepayments shall be made pro rata among the holders of the Notes on the basis of the outstanding principal amount of the Note held by each holder. Any such prepayments made to the holder pursuant to this paragraph 4.4 shall at the option of the Company be applied to either: (i) first to accrued but unpaid interest and then to outstanding principal; or (ii) to accrued but unpaid interest and then to future interest payable under the terms of the Agreement.”

(E)

Section 4.5 (Mandatory Prepayments).  Section 4.5 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

“4.5

Mandatory Prepayments.  

(i)

On the Maturity Date, upon a Change of Control or upon the occurrence and during the continuation beyond all applicable grace or cure periods of an Event of Default (as hereinafter defined), the Company shall (a) prepay all of the Notes for an

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amount equal to the then outstanding principal balance plus all accrued but unpaid interest thereon, and (b) pay in full all of the other obligations owing to Agent and Purchaser under or in connection with this Agreement, which amount shall be calculated on the date of prepayment and be payable in cash on demand in immediately available funds on such date.

(ii)

In addition to and not in limitation of the foregoing, if at any time prior to the Maturity Date:

(A)

the Company, the Specified Subsidiary or the Project Company consummates project financing through or by means of*, prepay all of the Notes.

(B)

the Company, the Specified Subsidiary or the Project Company consummate an equity financing pursuant to which it sells common or preferred shares resulting in net proceeds to the Company of not less than $5,000,000 at any one time or in any 12 month period, and with the principal purpose of raising capital (a “Qualified Equity Financing”), then the Company shall prepay the Notes in an amount not less than forty percent (40%) of the net proceeds of any such Qualified Equity Financing.

(C)

the Company sells the real estate located in the County of Vermilion, State of Illinois, then, upon the consummation of such sale, the Company will pay to the holder of the Note one hundred percent (100%) of the net proceeds of such sale.  

(iii)

Notwithstanding anything to the contrary contained herein, all prepayments pursuant to this Section 4.5 shall be applied in the following order of priority to the payment of: (i) all then unpaid fees and expenses of Agent and Purchasers under the Notes and other Transaction Documents other than those added to the principal of the Note pursuant to this Amendment; (ii) accrued and unpaid interest on the Notes (in such order as Agent shall determine in its sole discretion); and (iii) the unpaid principal balance of the Notes.”

(F)

Section 5.1 (Financial Statements).  Section 5.1 of the Agreement is hereby amended by inserting the following at the end of Section 5.1:

“From the date hereof, the Company will also provide to Agent within fifteen (15) days of the end of each calendar month the Company’s projected cash flow forecast including a written report summarizing all material variances between the Company’s projected cash flow and actual operating results in form and content satisfactory to Agent.”

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(G)

Section 5.4 (Note Restrictive Covenants).  Section 5.4 of the Agreement is hereby amended by inserting the following new items “(xv)” and “(xvi)” and “(xvii)” after item “(xiv):

“(xv) neither the Company nor any Significant Subsidiary shall pay or otherwise redeem, exchange, purchase, retire or defease any Subordinated Debt, including, without limitation, any such Indebtedness owing to Laird Q. Cagan.  For the avoidance of doubt, Subordinated Debt does not include ordinary course trade payables.

(xvi)

the Company shall not, and shall not permit any Significant Subsidiary to, sell, assign, lease, transfer or otherwise dispose of all or a substantial part of the Company’s or any Significant Subsidiary’s business or the Company’s or any Significant Subsidiary’s assets without the prior written consent of Agent.

(xvii) the Company shall not permit the Specified Subsidiary or the Project Company to pledge, sell, assign, lease, or transfer their respective assets without the prior written consent of the Agent, which consent shall not be unreasonably withheld, conditioned or delayed.”

(H)

Section 5.6 (Financial Covenants). The financial covenants in Section 5.6 of the Agreement are hereby deleted.  

(I)

Section 7.1 (Events of Default).  Section 7.1 is amended by deleting the reference to “(Definitions”) after “7.1” and inserting “(Events of Default)” in its stead.

SECTION 3.

Conditions to Effectiveness.  This Amendment, and the consents and amendments contained herein, shall be effective only upon and subject to satisfaction of the following conditions precedent (the date of satisfaction of all such conditions being referred to herein as the “Effective Date”):  

(A)

Agent shall have received and accepted an original of this Amendment duly executed by the parties hereto;

(B)

Agent shall have received an extension and amendment fee of $350,000, which fee shall be deemed fully earned and nonrefundable on the date of this Amendment and shall be added to the outstanding principal balance owing on the Notes.  

(C)

Agent shall have received (i) an original duly executed Assignment of Proceeds Agreement (the “Assignment Agreement”) for the pledge and assignment of 50% of all cash dividends, cash royalties and all other proceeds thereof received by the Company from time to time from the Specified Subsidiary and/or the Project Company, including with respect to financing provided under the* (collectively, the “Assigned Proceeds”), in connection with a project agreement and lease agreement with Cilion, Inc. for a 55 million gallon per year ethanol plant owned located in Keyes, California;

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(D)

Agent shall have received an original Guaranty Agreement duly executed by the Project Company in form and content acceptable to Agent guaranteeing the obligation of the Company to pay over to Agent the Assigned Proceeds, subordinated only to the rights of any senior lender providing senior financing to the Project Company in connection with the *.

(E)

The Company shall have received reimbursement of all fees, costs and expenses owed to and/or incurred by Agent and its counsel in connection with the Agreement and/or this Amendment, including, without limitation, the costs of appraisals of the real property collateral located in Vermilion County, Illinois and Clay County, Nebraska, which fees, costs and expenses shall be added by Agent to the outstanding principal balance of the Notes;

(F)

Agent shall have received an amendment to the Warrant amending the exercise price of the Warrants based on the volume weighted average trading price of the Common Stock of the Company for the twenty trading days immediately preceding the date of this Amendment. All other terms of the Warrant will remain the same;

(G)

Agent shall have received evidence that such other approvals, opinions, documents, agreements, instruments, certificates, schedules and materials as Agent may reasonably request; and

(H)

(i) the representations and warranties contained herein and in all other Transaction Documents shall be true and correct in all material respects as of the date hereof and as of the date hereof as if then made, except for such representations and warranties limited by their terms to a specific date; (ii) no Event of Default shall be in existence after giving effect to this Amendment; (iii) all proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be satisfactory to Agent.

SECTION 4.

Additional Covenants. As further consideration of Agent and Purchasers agreeing to the amendments contained in this Amendment, the Company hereby agrees and covenants with Agent as follows:

(i)

from the Effective Date until the Maturity Date, neither the Company nor any of its Subsidiaries shall (a) file a voluntary petition in bankruptcy or file a voluntary petition or file an answer or file any proposal of notice of intent to file a proposal or otherwise commence any action or proceeding seeking reorganization, arrangement or readjustment of its debts or which seeks to stay or has the effect of staying any creditors or for any other relief under Chapter 11 of Title 11 of the United States Code, as amended from time to time and any successor statutes and all rules and regulations promulgated thereunder (the “Bankruptcy Code”), the Bankruptcy and Insolvency Act (Canada) and the Companies’ Creditors Arrangement Act (Canada), as amended and in effect from time to time and the regulations issued from time to time thereunder, or under any other bankruptcy, insolvency, l iquidation, winding up, corporate or similar act or law, provincial, state or federal, now or hereafter existing, or consent to, approve of or acquiesce in, any such petition, proposal, action or proceeding; or (b) apply for or acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator, custodian, monitor, trustee or similar officer for it or for all or any part of its property or assets; or (c) make an assignment for

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the benefit of creditors; in each case without first obtaining the prior written consent of Agent; or (d) file any plan or arrangement under the Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada) and the Companies’ Creditors Arrangement Act (Canada), as amended and in effect from time to time and the regulations issued from time to time thereunder, or under any other bankruptcy, insolvency, liquidation, winding up, corporate or similar act or law that provides for, or would permit directly or indirectly, the Agent or any Purchaser to be classified with any other creditor of the Company or any of its Subsidiaries for the purposes of any such bankruptcy law or otherwise.

(ii)

in the event of any dissolution, bankruptcy, receivership, winding-up, liquidation, arrangement, reorganization, restructuring or other similar proceedings in respect of the Company or any of its Subsidiaries (whether voluntary or involuntary), any proposal or other proceeding seeking a stay of proceedings, reorganization or compromise of the claims of creditors in respect of the Company or any of its Subsidiaries is commenced under the Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada) and the Companies’ Creditors Arrangement Act (Canada), as amended and in effect from time to time and the regulations issued from time to time thereunder, or under any other bankruptcy, insolvency, liquidation, winding up, corporate or similar act or law, provincial, state or federal, now or hereafter existing, or any distribution of assets of the Company or any of its Subsidiaries is made among its o r their creditors in any matter whatsoever (each, an “Insolvency Proceeding”), Agent and each Purchaser shall be treated as an unaffected creditor in such Insolvency Proceeding, which shall provide that any stay of proceedings shall not apply to (a) prevent Agent or any Purchaser from exercising any rights and remedies under the Agreement and other Transaction Documents, including the right to terminate the Agreement and made demand thereunder and from exercising its rights and remedies with respect thereto and all security held in connection therewith; and (b) without limiting clause (a) above, prevent Agent or any Purchaser from applying to the Court for the appointment of a receiver, interim receiver, receiver and manager and/or for the appointment of a trustee in bankruptcy in connection with the enforcement of the charges in favor of Agent or any Purchaser created pursuant to the Agreement and the other Transaction Documents in connection with and for the purpose of payment of the Indeb tedness evidenced by the Note and all other obligations owing in connection therewith.

(iii)

in the event of any Insolvency Proceeding in respect of the Company or any of its Subsidiaries, Agent and Purchasers shall have a right of first refusal to provide to the Company and its Subsidiaries debtor-in-possession financing on terms and conditions satisfactory to Agent and Purchasers, in their sole and unfettered discretion.

The Company acknowledges and agrees that the failure to perform, or cause the performance, of the foregoing covenants and agreements will constitute an Event of Default under the Agreement and Agent and Purchasers shall have the right to demand the immediate repayment in full in cash of all outstanding Indebtedness owing to Agent and Purchaser under the Agreement, the Note and the other Transaction Documents.  In consideration of the foregoing and the transactions contemplated by this Amendment, the Company hereby (a) ratifies and confirms all of the obligations and liabilities of the Company owing pursuant to the Agreement and the other Transaction Documents and (b) agrees to pay all costs and expenses of Agent and Purchasers in connection with this Amendment.  Except as expressly set forth herein, (a) the

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Agreement and the other Transaction Documents remain in full force and effect, (b) this Amendment shall not be deemed to be a waiver, amendment or modification of, or consent to or departure from, any provisions of the Agreement or the other Transaction Documents or to be a waiver of any provision or Event of Default under the Agreement or the other Transaction Documents whether arising before or after the date hereof or as a result of the transactions contemplated hereby (except for the specific waiver referenced above), and (c) this Amendment shall not preclude the future exercise of any right, remedy, power or privilege available to Agent and/or Purchasers whether under the Transaction Documents or otherwise.

SECTION 5.

Limited Waiver.  As of the date hereof, and subject to the conditions precedent in Section 2 above, notwithstanding anything to the contrary in the Agreement or any of the Transaction Documents, Agent and Purchasers agree as follows:

(A)

to hereby waive any breach or violation of the Agreement (and any resulting Event of Default) under or as a result of the Company’s failure to comply with the Current Ratio for the months of January, 2009 through the date hereof, subject to receipt by Agent of a waiver fee of $150,000 in cash which fee shall be added by Agent to the outstanding principal balance of the Notes; and

(B)

to hereby waive any breach or violation of the Agreement (and any resulting Event of Default) under or as a result of the Company’s failure to comply with the Stock Market Capitalization for the months of January, 2009 through the date hereof, subject to receipt by Agent of a waiver fee of $150,000 in cash which fee shall be added by Agent to the outstanding principal balance of the Notes.

Except as expressly provided herein, nothing contained herein shall be construed as a waiver by Agent or Purchasers of any covenant or provision of the Agreement, the other Transaction Documents, this Amendment, or of any other contract or instrument among the Company, any of its Subsidiaries, Purchasers and Agent, and the failure of Agent or Purchasers at any time or times hereafter to require strict performance by the Company or any of its Subsidiaries of any provision thereof shall not waive, affect or diminish any right of Agent or Purchasers to thereafter demand strict compliance therewith.  Agent and Purchasers hereby reserve all rights granted under the Agreement, the Transaction Documents, this Amendment and any other contract or instrument among the Company and/or any of its Subsidiaries, Purchasers and Agent.

SECTION 6.

Agreement in Full Force and Effect as Amended.  Except as specifically amended, consented and/or waived hereby, the Agreement and other Transaction Documents shall remain in full force and effect and are hereby ratified and confirmed as so amended.  Except as expressly set forth herein, this Amendment shall not be deemed to be a waiver, amendment or modification of any provisions of the Agreement or any other Transaction Document or any right, power or remedy of Agent or Purchasers, nor constitute a waiver of any provision of the Agreement or any other Transaction Document, or any other document, instrument and/or agreement executed or delivered in connection therewith or of any Default or Event of Default under any of the foregoing, in each case whether arising before or after the date hereof or as a result of performance hereunder or thereunder.  This Amendment also shall not

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preclude the future exercise of any right, remedy, power, or privilege available to Agent and/or Purchasers whether under the Agreement, the other Transaction Documents, at law or otherwise.  All references to the Agreement shall be deemed to mean the Agreement as modified hereby.  This Amendment shall not constitute a novation or satisfaction and accord of the Agreement and/or other Transaction Documents, but shall constitute an amendment thereof.  The parties hereto agree to be bound by the terms and conditions of the Agreement and Transaction Documents as amended by this Amendment, as though such terms and conditions were set forth herein.  Each reference in the Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Agreement as amended by this Amendment, an d each reference herein or in any other Transaction Document to the “Agreement” shall mean and be a reference to the Agreement as amended and modified by this Amendment.

SECTION 7.

Representations.  The Company hereby represents and warrants to Agent and Purchasers as of the date of this Amendment and as of the date hereof as follows:  (A) it is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of organization; (B) the execution, delivery and performance by it of this Amendment and all other Transaction Documents executed and/or delivered in connection herewith are within its powers, have been duly authorized, and do not contravene (i) its articles of organization, operating agreement, or other organizational documents, or (ii) any applicable law; (C) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any Governmental Authority or other Person, is required in connection with the execution, delivery, performance, validity or enforceability of this Amendment or any other Transaction Documents executed and/or delivered in connection herewith by or against it; (D) this Amendment and all other Transaction Documents executed and/or delivered in connection herewith have been duly executed and delivered by it; (E) this Amendment and all other Transaction Documents executed and/or delivered in connection herewith constitute its legal, valid and binding obligation enforceable against it in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity; (F) after giving effect to this Amendment, it is not in default under the Transaction Documents and no Event of Default exists, has occurred and is continuing or would result by the execution, delivery or performance of this Amendment; and (G) the representations and warranties contained in the Transaction Documents are true and c orrect in all material respects as of the date hereof as if then made, except for such representations and warranties limited by their terms to a specific date.

SECTION 8.

Right of First Refusal.  Agent and Purchasers agree to grant to the Company a right of first refusal on any sale by the Agent or any Purchaser of any Collateral or other assets of the Company or its Subsidiaries, foreclosed upon or otherwise received from the Company or its Subsidiaries as a result of the Purchase Agreement or any of the Transaction Documents.  The Company shall have thirty (30) days exercisable by written notice delivered to Agent after the Agent or any Purchaser enters into any definitive sale agreement pursuant to auction or otherwise, with a bona fide third party purchaser, or the Agent or Purchaser enters into or makes a creditor bid to acquire such Collateral, to exercise such right of first refusal for the price and on the terms and conditions contained in such purchase agreement or with respect to

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such bid.  Any purchase of Collateral by the Company by virtue of such right of first refusal shall be made without recourse, representation or warranty of Agent or any Purchaser.

If the Company does not exercise such right of first refusal, such right of first refusal shall terminate. Such right of first refusal is not assignable by the Company.

SECTION 9.

Miscellaneous.

(A)

This Amendment may be executed in any number of counterparts (including by facsimile), and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.  Each party agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party.  The descriptive headings of the various sections of this Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof or thereof.  Whenever the context and construction so require, all words herein in the singular number herein shall be deemed to have been used in the plural, and vice versa, and the masculine gender shall include the feminine and neuter and the neuter shall include the masculine and feminine.

(B)

This Amendment may not be changed, amended, restated, waived, supplemented, discharged, canceled, terminated or otherwise modified without the written consent of the Company and Agent.  This Amendment shall be considered part of the Agreement and shall be a Transaction Document for all purposes under the Agreement and other Transaction Documents.

(C)

This Amendment, the Agreement and the Transaction Documents constitute the final, entire agreement and understanding between the parties with respect to the subject matter hereof and thereof and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the parties, and shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto and thereto.  There are no unwritten oral agreements between the parties with respect to the subject matter hereof and thereof.

(D)

THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE CHOICE OF LAW PROVISIONS SET FORTH IN THE AGREEMENT AND SHALL BE SUBJECT TO THE WAIVER OF JURY TRIAL AND NOTICE PROVISIONS OF THE AGREEMENT.

(E)

The Company may not assign, delegate or transfer this Amendment or any of its rights or obligations hereunder.  No rights are intended to be created under this Amendment for the benefit of any third party donee, creditor or incidental beneficiary of the Company or any of its Subsidiaries.  Nothing contained in this Amendment shall be construed as a delegation to Agent or Purchasers of the Company’s or any of its Subsidiaries’ duty of performance, including, without limitation, any duties under any account or contract in which

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Agent or Purchasers have a security interest or lien.  This Amendment shall be binding upon the Company and its respective successors and assigns.

(F)

All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment and no investigation by Agent or Purchasers shall affect such representations or warranties or the right of Agent or Purchasers to rely upon them.

(G)

THE COMPANY HEREBY ACKNOWLEDGES THAT THE COMPANY’S PAYMENT OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL WITHOUT ANY RIGHT OF RECISSION, SETOFF, COUNTERCLAIM, DEFENSE, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE “OBLIGATIONS” OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM AGENT OR ANY PURCHASER.  THE COMPANY HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES AGENT AND EACH PURCHASER AND THEIR RESPECTIVE PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “RELEASED PARTIES”), FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE COMPANY MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY “LOANS”, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE AGREEMENT OR OTHER TRANSACTION DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.

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This Amendment is executed as of the date stated at the beginning of this Amendment.

Agent:
Third Eye Capital Corporation
By:	/s/ David G. Alexander
Its:	David G. Alexander Managing Director
Company:
AE Biofuels, Inc.
By:	/s/ Eric A. McAfee
Its:	Eric A. McAfee Chief Executive Officer

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EX-10.2

Exhibit 10.2

*

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

ASSIGNMENT OF PROCEEDS AGREEMENT

This Assignment of Proceeds Agreement (“Assignment Agreement”), dated as of December 10, 2009 is between AE BIOFUELS, INC., a Nevada corporation (“AEB”), and THIRD EYE CAPITAL CORPORATION, an Ontario corporation (“Third Eye”), as agent for certain purchasers (“Purchasers”) of the Note (defined below) dated May 16, 2008.

RECITALS

A.

AEB, Third Eye and the Purchasers named therein entered into a certain Note and Warrant Purchase Agreement, dated as of May 16, 2008, as amended by that certain Amendment No. 1 to Note and Warrant Purchase Agreement dated as of May 28, 2008 between the Company and Third Eye, as further amended by that certain Amendment No. 2 and Limited Waiver to Note and Warrant Purchase Agreement dated as of July 23, 2008 between the Company and Third Eye and as further amended by that certain Amendment No. 4 and Limited Waiver to Note and Warrant Purchase Agreement dated as of December 10, 2009 between the Company and Third Eye (collectively, the “Original Agreement” or “Note”).  

B.

The Company and Third Eye signed an Amendment No. 3 and Limited Waiver to Note and Warrant Purchase Agreement dated March 31, 2009; however, the Company failed to satisfy the conditions precedent to the effectiveness of such amendment and such amendment is hereby deemed null and void. As of the date of this Assignment Agreement, the Note is currently in default.

C.

AEB is the parent company of AE Advanced Fuels, Inc., a Delaware corporation (the “Subsidiary”), and AE Advanced Fuels Keyes, Inc., a Delaware corporation (the “Project Company”).  AEB and the Project Company have entered into a project agreement and lease agreement with Cilion, Inc. in connection with the 55 million gallon per year ethanol plant owned by Cilion, Inc. located in Keyes, California.  AEB plans to receive royalties and other payments from the Subsidiary as well as dividends from the Project Company resulting from the net cash flows provided from operating the leased ethanol plant (collectively with all cash dividends, cash royalties and all other proceeds thereof received by AEB from time to time from the Subsidiary or the Project Company, including, without limitation, from project financing* into the Subsidiary and/or the Project Company, the “Proceeds”). These Proceeds will be used for ordinary business expenses, including repayment of AEB’s outstanding debt and operating expenses.

D.

AEB has agreed to assign to Third Eye, as agent for the Purchasers, and grant to Third Eye a first priority security interest in, fifty percent (50%) of all Proceeds (collectively, the “Assigned Proceeds”) to repay outstanding principal and interest on the Note.

NOW, THEREFORE, the parties hereby agree as follows:

1. ASSIGNMENT OF PROCEEDS.  AEB hereby assigns to Third Eye, as agent for the Purchasers, and grants to Third Eye, as agent for the Purchasers, a first priority security interest in, the Assigned Proceeds.

2.

DEPOSIT ACCOUNT.AEB has established account no. __________________(the "Account") at the Heritage Bank (the "Bank") located at ____________, San Jose, California in the name of AEB.  AEB acknowledges that the Account is a deposit account denominated in dollars.  AEB shall pay or cause to be paid all Assigned Proceeds directly to the Account in immediately available funds. Pursuant to a mutually acceptable deposit account control agreement among AEB, Third Eye, as agent for the Purchasers, and Bank (the “Control Agreement”), Third Eye, as agent for the Purchasers, shall have a first priority security interest in and control over the Assigned Proceeds and the Account. All fees associated with the Account and its operation shall be paid by AEB.  AEB shall cause a Control Agreement duly executed by AEB and the Bank to be delivered to Third Eye within thirty (30) days of the date of this Agreement.  

a)

Assignment. AEB hereby assigns to Third Eye, as agent for the Purchasers, and grants to Third Eye, as agent for the Purchasers, a first priority security interest in, the Assigned Proceeds and the Account.

b)

Withdrawals.

All Assigned Proceeds shall be promptly deposited into the Account and shall be remitted within 3 business days of deposit into the Account to Third Eye in accordance with the instructions set forth in Exhibit A attached hereto.  All Assigned Proceeds received by Third Eye in accordance with the terms of this Assignment Agreement shall be applied by Third Eye, as agent for the Purchasers, in the following order of priority:

i)

all then unpaid fees and expenses of Agent and Purchasers under the Notes and the other Transaction Documents(including reasonable attorneys’ fees) other than those added to the principal of the Note pursuant to the Note;

ii)

accrued and unpaid interest on the Notes (in such order as Agent shall determine in its sole discretion); and

iii)

the unpaid principal balance of the Note.

3.

EVENTS OF DEFAULT. If AEB fails to perform any of its obligations hereunder, including, without limitation, the delivery of a duly executed Control Agreement in accordance with Section 2 above, and such failure has continued uncured for ten (10) days after receipt of written notice from Third Eye to AEB, Third Eye may thereafter at any time and from time to time and without demand or notice, withdraw and receive all Assigned Proceeds in the Account up to the full amount of principal, interest, fees and costs outstanding under the Note in addition to and not in limitation of any other rights or remedies available to Third Eye under or in connection with the Note, at law or in equity.

4.

WAIVERS; ACCOUNTING.

a)

Waivers.  AEB waives any right to require Third Eye to make or give any presentment, demands for performances, notices of nonperformance, protests, notices of protest, or notices of dishonor in connection with withdrawal of the Assigned Proceeds from the Account.  

b)

Accounting.  Within five (5) days of the end of each calendar month, AEB shall provide to Third Eye a written accounting of all Proceeds received by AEB, the Subsidiary and the Project Company for the prior month in form and content reasonably acceptable to Third Eye. In addition AEB shall cause the Bank to send a duplicate statement for the Account to Third Eye and shall authorize the Bank to provide any additional information relating to the Account to Third Eye upon Third Eye’s request without AEB’s further consent

5.

TERMINATION. This Assignment Agreement shall remain in full force and effect until all principal and interest outstanding under the Note is paid in full.

6.

REPRESENTATIONS.  AEB hereby represents and warrants to Third Eye as of the date of this Assignment Agreement as follows:  (A) it is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of organization; (B) the execution, delivery and performance by it of this Assignment Agreement have been duly authorized, and do not contravene (i) its articles of incorporation and bylaws, or (ii) any applicable law; (C) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of this Assignment Agreement; (D) this Assignment Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation enforceable against it in accordance with its te rms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity.

7. MISCELLANEOUS.

a) This Assignment Agreement may not be changed, amended, restated, waived, supplemented, discharged, canceled, terminated or otherwise modified without the written consent of AEB and Third Eye.  

b) This Assignment Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the parties, and shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto.

c) AEB may not assign, delegate or transfer this Assignment Agreement or any of its rights or obligations hereunder without the prior written consent of Third Eye.  This Assignment Agreement shall be binding upon AEB and its respective successors and assigns.

d) This Assignment Agreement is a Transaction Document (as defined in the Note).

e) THIS ASSIGNMENT AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE CHOICE OF LAW PROVISIONS SET FORTH IN THE NOTE AND SHALL BE SUBJECT TO THE WAIVER OF JURY TRIAL AND NOTICE PROVISIONS OF THE NOTE.

This Assignment Agreement is executed as of the date stated at the beginning of this Assignment Agreement.

Third Eye:
Third Eye Capital Corporation
By:	/s/ David G. Alexander
Its:	David G. Alexander Managing Director
AEB:
AE Biofuels, Inc.
By:	/s/ Eric A. McAfee
Its:	Eric A. McAfee Chairman/Chief Executive Officer

EX-10.3

Exhibit 10.3

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT is made as of December 10, 2009 by AE ADVANCED FUELS KEYES, INC., a Delaware corporation (“Guarantor”), in favor of THIRD EYE CAPITAL CORPORATION (“Agent”) for itself and the Purchasers a party to the Purchase Agreement defined below.  

RECITALS

A.

AE Biofuels, Inc. (the “Company”), Agent and the Purchasers named therein entered into a certain Note and Warrant Purchase Agreement, dated as of May 16, 2008, as amended by that certain Amendment No. 1 to Note and Warrant Purchase Agreement dated as of May 28, 2008 between the Company and Third Eye, as further amended by that certain Amendment No. 2 and Limited Waiver to Note and Warrant Purchase Agreement dated as of July 23, 2008 between the Company and Third Eye and as further amended by that certain Amendment No. 4 and Limited Waiver to Note and Warrant Purchase Agreement dated as of December 10, 2009 between the Company and Third Eye (collectively, the “Purchase Agreement” or the “Note”).  

B.

The Company and Third Eye signed an Amendment No. 3 and Limited Waiver to Note and Warrant Purchase Agreement dated March 31, 2009; however, the Company failed to satisfy the conditions precedent to the effectiveness of such amendment and such amendment is hereby deemed null and void. As of the date of this Assignment Agreement, the Note is currently in default.

C.

The Company is the parent company of the Guarantor.  AEB and the Guarantor have entered into a project agreement and lease agreement with Cilion, Inc. in connection with the 55 million gallon per year ethanol plant owned by Cilion, Inc. located in Keyes, California.  The Company plans to receive royalties and other payments and dividends from the Guarantor resulting from the net cash flows provided from operating the leased ethanol plant (collectively with all cash dividends, cash royalties and all other proceeds thereof received by AEB from time to time from the Guarantor, including, without limitation, from project financing raised through or by means of the Program into the Subsidiary and/or the Guarantor, the “Proceeds”). These Proceeds will be used for ordinary business expenses, including repayment of the Company’s outstanding debt and operating expenses.

D.

The Company has agreed to assign to Third Eye, as agent for the Purchasers, and grant to Third Eye a first priority security interest in, fifty percent (50%) of all Proceeds (collectively, the “Assigned Proceeds”) to repay outstanding principal and interest on the Note pursuant to an Assignment of Proceeds Agreement, dated as of December 10, 2009 between the Company and the Agent (as the same may be amended from time to time, the “Assignment Agreement”).

E.

In further consideration for the assignment of the Assigned Proceeds pursuant to the Assignment Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed that:

ARTICLE I

DEFINITIONS

When used in this Guaranty, capitalized terms shall have the meanings specified in the Purchase Agreement, in the foregoing Recitals and as follows:

Event of Default.  “Event of Default” shall have the meaning specified in the Purchase Agreement.

Guaranty.  “Guaranty” shall mean this Guaranty, as the same shall be amended from time to time in accordance with the terms hereof.

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

Notes.  “Notes” shall have the meaning given to it in the Purchase Agreement.

Obligations.  “Obligations” shall mean the obligation and liability of the Company to pay to Agent, for the benefit of the Purchasers, the Assigned Proceeds in accordance with the Assignment Agreement, and to otherwise perform its obligations under the Assignment Agreement.

Person.  “Person” shall mean and include an individual, partnership, corporation, trust, unincorporated association and any unit, department or agency of government.

Transaction Documents.  “Transaction Documents” shall have the meaning specified in the Purchase Agreement.

ARTICLE II

THE GUARANTY

2.1

The Guaranty.  Guarantor, for itself, its successors and assigns, hereby unconditionally and absolutely guarantees to Agent and Purchasers the full and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of each of the Obligations.  This is a guaranty of payment and performance and not of collection.

2.2

Waivers and Consents.  (a) Guarantor acknowledges that the obligations undertaken herein involve the guaranty of obligations of a Person other than Guarantor and, in full recognition of that fact, Guarantor consents and agrees that Agent and Purchasers may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof:  (i) supplement, modify, amend, extend, renew, accelerate or otherwise change the time for payment or the other terms of the Obligations or any part thereof; (ii) supplement, modify, amend or waive, or enter into or give any agreement, approval or consent with respect to, the Obligations or any part thereof, or any of the Transaction

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Documents or any additional security or guaranties, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder; (iii) accept new or additional instruments, documents or agreements in exchange for or relative to any of the Transaction Documents or the Obligations or any part thereof; (iv) accept partial payments on the Obligations; (v) receive and hold additional security or guaranties for the Obligations or any part thereof; (vi) release, reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange, substitute, transfer and/or enforce any security or guaranties, and apply any security and direct the order or manner of sale thereof as Agent and Purchasers in their sole and absolute discretion may determine; (vii) release any Person from any personal liability with respect to the Obligations or any part thereof; (viii) settle, rel ease on terms satisfactory to Agent and Purchasers or by operation of applicable Law or otherwise, liquidate or enforce any Obligations and any security or guaranty in any manner, consent to the transfer of any security and bid and purchase at any sale; and/or (ix) consent to the merger, change or any other restructuring or termination of the corporate existence of Company or any other Person, and correspondingly restructure the Obligations, and any such merger, change, restructuring or termination shall not affect the liability of Guarantor or the continuing effectiveness hereof, or the enforceability hereof with respect to all or any part of the Obligations.

(b)

Subject to the subordination provisions contained herein, upon the occurrence and during the continuance of any Event of Default, Agent and/or any Purchaser may enforce this Guaranty independently of any other remedy, guaranty or security Agent or any Purchaser at any time may have or hold in connection with the Obligations or under the Purchase Agreement, and it shall not be necessary for Agent or any Purchaser to marshal assets in favor of Company or any Subsidiary of Company, any other guarantor of the Obligations or any other Person or to proceed upon or against and/or exhaust any security or remedy before proceeding to enforce this Guaranty.  Guarantor expressly waives any right to require Agent or any Purchaser to marshal assets in favor of Company or any other Person or to proceed against Company or any other guarantor of the Obligations or any collateral provided by any Person, and ag rees that Agent or any Purchaser may proceed against any obligor and/or the collateral in such order as it shall determine in its sole and absolute discretion.  Agent or any Purchaser may file a separate action or actions against Guarantor, whether action is brought or prosecuted with respect to any security or against any other Person, or whether any other Person is joined in any such action or actions.  Guarantor agrees that Agent or any Purchaser and Company may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing between them, in any manner whatsoever, all without in any way altering or affecting the security of this Guaranty.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, AGENT, FOR ITSELF AND PURCHASERS, HEREBY ACKNOWLEDGES AND AGREES  THAT THE OBLIGATIONS AND LIABILITIES OF GUARANTOR UNDER THIS GUARANTY TO AGENT AND PURCHASERS ARE SUBORDINAT ED TO THE OBLIGATIONS AND LIABILITIES OF GUARANTOR TO ANY LENDER PROVIDING FINANCING TO GUARANTOR, INCLUDING ANY SECURITY INTEREST OR LIEN HELD BY SUCH LENDER.

(c)

Agent’s and each Purchaser’s rights hereunder shall be reinstated and revived, and the enforceability of this Guaranty shall continue, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by Agent and/or each Purchaser upon the bankruptcy, insolvency or reorganization of any Person, all as though such amount had not been paid.  The rights of Agent and Purchasers

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created or granted herein and the enforceability of this Guaranty shall remain effective at all times to guarantee the full amount of all the Obligations even though the Obligations, including any part thereof or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against Company or any other guarantor of the Obligations and whether or not Company or any other guarantor of the Obligations shall have any personal liability with respect thereto.

(d)

Guarantor expressly waives any and all defenses now or hereafter arising or asserted by reason of:  (i) any disability or other defense of Company or any other guarantor for the Obligations with respect to the Obligations; (ii) the unenforceability or invalidity of any security for or guaranty of the Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Obligations; (iii) the cessation for any cause whatsoever of the liability of Company or any other guarantor of the Obligations (other than by reason of the full payment and performance of all Obligations); (iv) any failure of Agent or any Purchaser to marshal assets in favor of Company or any other Person; (v) any failure of Agent or any Purchaser to give notice of sale or other disposition of collateral to Company or any other Person or any defect in any notice that may be given in connection with any sale or disposition of collateral; (vi) any failure of Agent or any Purchaser to comply with applicable Laws in connection with the sale or other disposition of any collateral or other security for any Obligation, including, without limitation, any failure of Agent or any Purchaser to conduct a commercially reasonable sale or other disposition of any collateral or other security for any Obligation; (vii) any act or omission of Agent or any Purchaser or others that directly or indirectly results in or aids the discharge or release of Company or any other guarantor of the Obligations, or of any security or guaranty therefor by operation of Law or otherwise; (viii) any Law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety’s or guarantor’s obligation in proportion to the principal obligation; (ix) any failure of Agent or any Purchaser to file or enfo rce a claim in any bankruptcy or other proceeding with respect to any Person; (x) the election by Agent or any Purchaser, in any bankruptcy proceeding of any Person, of the application or non-application of Section 1111(b)(2) of the United States Bankruptcy Code; (xi) any extension of credit or the grant of any lien under Section 364 of the United States Bankruptcy Code; (xii) any use of collateral under Section 363 of the United States Bankruptcy Code; (xiii) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any Person; (xiv) the avoidance of any lien or security interest in favor of Agent or any Purchaser for any reason; (xv) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any Person, including without limitation any discharge of, or bar or stay against collecting, all or any of the Obligations (or any interest thereon) in or as a result of any such pr oceeding; or (xvi) any action taken by Agent or any Purchaser that is authorized by this Section or any other provision of any Transaction Document.  Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Obligations.

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2.3

Condition of Company.  Guarantor represents and warrants to Agent and each Purchaser that it has established adequate means of obtaining from Company, on a continuing basis, financial and other information pertaining to the businesses, operations and condition (financial and otherwise) of Company and its assets and properties.  Guarantor hereby expressly waives and relinquishes any duty on the part of Agent or any Purchaser (should any such duty exist) to disclose to Guarantor any matter, fact or thing related to the business, operations or condition (financial or otherwise) of Company or its assets or properties, whether now known or hereafter known by Agent or any Purchaser during the life of this Guaranty.  With respect to any of the Obligations, neither Agent nor any Purchaser need inquire into the powers of Company or agents acting or purporting to act on i ts behalf, and all Obligations made or created in good faith reliance upon the professed exercise of such powers shall be guaranteed hereby.

2.4

Continuing  Guaranty.  This is a continuing guaranty and shall remain in full force and effect as to all of the Obligations until all amounts owing by Company to Agent and each Purchaser on the Obligations shall have been paid in full.

2.5

Subrogation; Subordination.  Guarantor expressly waives any claim for reimbursement, contribution, indemnity or subrogation which Guarantor may have against Company as a guarantor of the Obligations and any other legal or equitable claim against Company arising out of the payment of the Obligations by Guarantor or from the proceeds of any collateral for this Guaranty, until all amounts owing to Agent and each Purchaser under or in connection with the Obligations shall have been paid in full.  In furtherance, and not in limitation, of the foregoing waiver, Guarantor hereby agrees that no payment by Guarantor pursuant to this Guaranty shall constitute Guarantor a creditor of Company.  Until all amounts owing to Agent and each Purchaser under or in connection with the Obligations shall have been paid in full, Guarantor shall not seek any reimbursement from Company in re spect of payments made by Guarantor in connection with this Guaranty, or in respect of amounts realized by Agent or any Purchaser in connection with any collateral for the Obligations, and Guarantor expressly waives any right to enforce any remedy that Agent or any Purchaser now has or hereafter may have against any other Person and waives the benefit of, or any right to participate in, any collateral now or hereafter held by Agent or any Purchaser.  No claim which any Guarantor may have against any other guarantor of any of the Obligations or against Company, to the extent not waived pursuant to this Section, shall be enforced nor any payment accepted until the Obligations are paid in full and all such payments are not subject to any right of recovery.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF GUARANTOR

Guarantor hereby represents and warrants to Agent and each Purchaser as follows:

3.1

Authorization.  Each Guarantor is a corporation duly and validly organized and existing under the laws of the State of Delaware, has the corporate power to own its owned assets and properties and to carry on its business, and is duly licensed or qualified to do business in all jurisdictions in which failure to do so would have a material adverse effect on its business or financial condition.  The making, execution, delivery and performance of this Guaranty, and compliance with its terms, have been duly authorized by all necessary limited liability company action of Guarantor.

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3.2

Enforceability.  This Guaranty is the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms.

3.3

Absence of Conflicting Obligations.  The making, execution, delivery and performance of this Guaranty, and compliance with its terms, do not violate any existing provision of Law; the certificate of formation or operating agreement of Guarantor; or any agreement or instrument to which Guarantor is a party or by which it or any of its assets is bound.

3.4

Consideration for Guaranty.  The Guarantor acknowledges and agrees with Agent and each Purchaser that but for the execution and delivery of this Guaranty by Guarantor, neither Agent nor any Purchaser would have entered into the Purchase Agreement.  The Guarantor acknowledges and agrees that the Purchase Agreement and the transactions contemplated thereby will result in significant benefit to the Guarantor.

ARTICLE IV

COVENANTS OF THE GUARANTOR

4.1

Actions by Guarantor.  Guarantor shall not take or permit any act, or omit to take any act, that would:  (a) cause Company to breach any of the Obligations; (b) impair the ability of Company to perform any of the Obligations; or (c) cause an Event of Default under the Purchase Agreement.

ARTICLE V

MISCELLANEOUS

5.1

Expenses and Attorneys’ Fees.  Guarantor shall pay all reasonable fees and expenses incurred by Agent or any Purchaser, including the reasonable fees of counsel, in connection with the protection or enforcement of Agent’s or any Purchaser’s rights under this Guaranty, including without limitation the protection and enforcement of such rights in any bankruptcy, reorganization or insolvency proceeding involving Company or Guarantor, both before and after judgment.

5.2

Revocation.  This is a continuing guaranty and shall remain in full force and effect until Agent receives written notice of revocation signed by Guarantor.  Upon revocation by written notice, this Guaranty shall continue in full force and effect as to all Obligations contracted for or incurred before revocation, and as to them Agent and each Purchaser shall have the rights provided by this Guaranty as if no revocation had occurred.  Any renewal, extension, or increase in the interest rate(s) of any such Obligation, whether made before or after revocation, shall constitute an Obligation contracted for or incurred before revocation.  Obligations contracted for or incurred before revocation shall also include credit extended after revocation pursuant to commitments made before revocation.

5.3

Assignability; Successors.  The Guarantor’s rights and liabilities under this Guaranty are not assignable or delegable, in whole or in part, without the prior written consent of Agent.  The provisions of this Guaranty shall be binding upon Guarantor, its successors and permitted assigns and shall inure to the benefit of Agent and Purchasers, and their respective successors and assigns.

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5.4

Survival.  All agreements, representations and warranties made herein or in any document delivered pursuant to this Guaranty shall survive the execution and delivery of this Guaranty and the delivery of any such document.

5.5

Governing Law.  This Guaranty and the documents issued pursuant to this Guaranty shall be governed by, and construed and interpreted in accordance with, the Laws of the State of New York, including Section 5-1401 and Section 5-1402 of the New York General Obligations Law, but excluding to the maximum extent permitted by applicable Law, all other conflict of laws principles and choice of law rules of the State of New York.  

5.6

Counterparts; Headings.  This Guaranty may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same agreement.  The article and section headings in this Guaranty are inserted for convenience of reference only and shall not constitute a part of this Guaranty.

5.7

Notices.  All notices, demands or other communica­tions to be given or delivered under or by reason of the provisions of this Guaranty shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid.  Such notices, demands and other communications shall be sent to Agent and to Guarantor at the address indicated below:

To Guarantor:	c/o AE Biofuels, Inc.
	20400 Stevens Creek Blvd. Suite 700
	Cupertino, CA 95014
	Attention:  Scott Janssen, Chief Financial Officer
To Agent:	Third Eye Capital Corporation
	Brookfield Place, TD Canada Trust Tower
	161 Bay Street, Suite 3820
	Toronto, Ontario ON M5J 2S1
	Canada
	Attention:  Vice President - Credit
With a copy to:	DLA Piper US LLP
	203 North LaSalle Street
	Suite 1800
	Chicago, Illinois 60601
	Attention:  Jennifer Homer

5.8

Amendment.  No amendment of this Guaranty shall be effective unless in writing and signed by the Guarantor and Agent.

5.9

Severability.  Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Guaranty in such jurisdiction or affecting the validity or enforceability of any provision in any other jurisdiction.

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5.10

Taxes.  If any transfer or documentary taxes, assessments or charges levied by any governmental authority shall be payable by reason of the execution, delivery or recording of this Guaranty, Guarantor shall pay all such taxes, assessments and charges, including interest and penalties, and hereby indemnifies Agent and each Purchaser against any liability therefor.

5.11

Jurisdiction and Venue.  Guarantor submits to the jurisdiction of any state or Federal court sitting in New York, New York in any legal suit, action or proceeding arising out of or relating to this Guaranty, (ii) agrees that all claims in respect of the action or proceeding may be heard or determined in any such court and (iii) agrees not to bring any action or proceeding arising out of or relating to this Guaranty in any other court.  Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto.  Any party may make service on any other party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 5 .7.  Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law.  Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Agent or any Purchaser to bring proceedings against Guarantor in the courts of any other jurisdiction.  To the extent provided by law, should Guarantor, after being so served, fail to appear or answer to any summons, complaint, process or papers so served within the number of days prescribed by law after the mailing thereof, Guarantor shall be deemed in default and an order and/or judgment may be entered by the court against Guarantor as demanded or prayed for in such summons, complaint, process or papers.  The exclusive choice of forum for Guarantor set forth in this Section 5.11 shall not be deemed to preclude the enforcement by Agent or any Purchaser of any judgment obtained in any other forum or the taking by Agent or any Purchaser of any action to enforce the same in any other appropriate jurisdiction, and Guarantor hereby waive the right to collaterally attack any such judgment or action.

5.12

Waiver of Right to Jury Trial.  GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS GUARANTY OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.  GUARANTOR AGREES THAT THIS SECTION 5.12 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT AGENT AND EACH PURCHASER WOULD NOT ENTER INTO THE PURCHASE AGREEMENT IF THIS SECTION 5.12 WERE NOT PART OF THIS AGREEMENT.

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IN WITNESS WHEREOF the undersigned has executed this Guaranty as of the day and year first above written.

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

SIGNATURE PAGE TO GUARANTY