Exhibit 10.7

 

Subordinated Convertible Notes

 

and Warrants to Purchase Shares of Common Stock

 

PACIFIC ETHANOL, INC.

 

PLACEMENT AGENT AGREEMENT

 

March 28, 2013

 

LAZARD CAPITAL MARKETS LLC
30 Rockefeller Plaza
New York, New York 10020

 

Dear Sirs:

 

1.               INTRODUCTION. Pacific Ethanol, Inc., a Delaware corporation
(the “Company”), proposes to issue and sell to the purchasers, pursuant to the
terms and conditions of this Placement Agent Agreement (this “Agreement”) and
the Securities Purchase Agreement in the form of EXHIBIT A attached hereto (the
“Securities Purchase Agreements”) entered into with the purchasers identified
therein (each a “Purchaser” and collectively, the “Purchasers”), up to an
aggregate of $14,000,000 of the Company’s Subordinated Convertible Notes and
two-year warrants to acquire shares of common stock, par value $0.001 per
share(“Common Stock”), upon exercise of such warrants (the “Offering”), which
will be consummated in two closings: (i) on the Initial Closing Date (as defined
in Section 4), the Company shall issue and sell to the Purchasers and the
Purchasers shall purchase from the Company, (x) an aggregate principal amount of
Notes equal to $6,000,000 (the “Series A Notes”), (y) Warrants in the form of
EXHIBIT A attached hereto (the “Series A Warrants”) to purchase shares of Common
Stock equal to $4,500,0001 and (z) Warrants in the form of EXHIBIT A attached
hereto (the “Series B Warrants”) to purchase shares of Common Stock equal to
$6,000,0002; and (ii) on the Second Closing Date (as defined in Section 4), the
Company shall issue and sell to the Purchasers and the Purchasers shall purchase
from the Company, an aggregate principal amount of second tranche Notes equal to
$8,000,000 (the “Series B Notes”). 

 

The Series A Notes, together with the Series B Notes, shall collectively be
referred to herein as the “Notes.” The Series A Warrants, together with the
Series B Warrants, shall collectively be referred to herein as the “Warrants”,
and the shares of Common Stock obtained upon the exercise of the Warrants shall
collectively be referred to herein as the “Warrant Shares.” The Notes, Warrants,
Warrant Shares, Interest/Amortization Shares (as defined below) and Conversion
Shares (as defined below) shall collectively be referred to herein as the
“Securities.” The Notes and Warrants are immediately separable and will be
issued separately. The terms and conditions of the Warrants are set forth in the
Securities Purchase Agreement. The Warrants will be issued by the Company in
certificated form.

 

__________________

[1] Calculated by dividing the product of (a) 110% and (b) the closing bid price
of the Common Stock on the date of this Agreement.

[2] Calculated by dividing the product of (a) 110% and (b) the closing bid price
of the Common Stock on the date of this Agreement.

 

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The Notes are convertible into shares of the Common Stock of the Company (the
“Conversion Shares”) and are entitled to interest, amortization payments and
certain other amounts, which may be paid in shares of Common Stock
("Interest/Amortization Shares") and will be issued pursuant to the terms of the
Notes and an Indenture to be dated the Initial Closing Date (the “Base
Indenture”), as supplemented by a first supplemental indenture to be dated the
Initial Closing Date (the “First Supplemental Indenture” and together with the
Base Indenture, the “Indenture”) between the Company and U.S. Bank National
Association, as trustee (the “Trustee”). The forms of Base Indenture and First
Supplemental Indenture are attached hereto as Exhibit C and Exhibit D,
respectively. The Conversion Shares, Interest/Amortization Shares and Warrant
Shares issued via Deposit/Withdrawal At Custodian will be issued to Cede & Co.,
as nominee of The Depository Trust Company (“DTC”) pursuant to a letter of
representations (the “DTC Agreement”), between the Company and DTC. The Notes
will be issued by the Company in certificated form.

 

The Company hereby confirms that Lazard Capital Markets LLC (“LCM” or the
“Placement Agent”) has acted as the Placement Agent in accordance with the terms
and conditions hereof.

 

2.               Agreement To Act As Placement Agent; Placement Of Securities.
On the basis of the representations, warranties and agreements of the Company
contained herein, and subject to all the terms and conditions of this Agreement:

 

(I)              The Company has authorized and hereby acknowledges that the
Placement Agent has acted as its exclusive agent to solicit offers for the
purchase of all or part of the Securities from the Company in connection with
the proposed Offering. Until the Second Closing Date (as defined in Section 4
hereof), the Company shall not, without the prior written consent of the
Placement Agent, solicit or accept offers to purchase Securities otherwise than
through the Placement Agent. The Placement Agent may utilize the expertise of
Lazard Frères & Co. LLC in connection with its placement agent activities.

 

(II)            The Company hereby acknowledges that the Placement Agent, as
agent of the Company, has agreed to use its commercially reasonable best efforts
to solicit offers to purchase the Securities from the Company on the terms and
subject to the conditions set forth in the Prospectus (as defined below). The
Placement Agent shall use commercially reasonable efforts to assist the Company
in obtaining performance by each Purchaser whose offer to purchase Securities
was solicited by the Placement Agent and accepted by the Company, but the
Placement Agent shall not, except as otherwise provided in this Agreement, be
obligated to disclose the identity of any potential purchaser or have any
liability to the Company in the event any such purchase is not consummated for
any reason. Under no circumstances will the Placement Agent be obligated to
underwrite or purchase any Securities for its own account and, in soliciting
purchases of Stock, the Placement Agent acted solely as the Company’s agent and
not as principal. Notwithstanding the foregoing and except as otherwise provided
in this Section 2, it is understood and agreed that the Placement Agent (or its
affiliates) may, solely at its discretion and without any obligation to do so,
purchase Securities from the Company as principal

 

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(III)          Offers for the purchase of Securities were solicited by the
Placement Agent as agent for the Company at such times and in such amounts as
the Placement Agent deemed advisable. The Placement Agent communicated to the
Company, orally or in writing, each reasonable offer to purchase Securities
received by it as agent of the Company. The Company shall have the sole right to
accept offers to purchase the Securities and may reject any such offer, in whole
or in part. The Placement Agent has the right, in its discretion reasonably
exercised, without notice to the Company, to reject any offer to purchase
Securities received by it, in whole or in part, and any such rejection shall not
be deemed a breach of this Agreement.

 

(IV)         The Securities are being sold to the Purchasers at a purchase price
of 100% of the aggregate principal amount of the Notes. The purchases of the
Securities by the Purchasers shall be evidenced by the execution of the
Securities Purchase Agreements by each of the Purchasers and the Company.

 

(V)           As compensation for services rendered, the Company shall pay to
the Placement Agent by wire transfer of immediately available funds to an
account or accounts designated by the Placement Agent, the following amounts:
(i) $355,000 on the Initial Closing Date and (ii) $470,000 on the Second Closing
Date, each as defined in Section 4 hereof (the “Placement Fee”). Such amounts
shall be deducted from the payment made by the Purchasers to the Company and
paid directly to the Placement Agent on each such closing date.

 

(VI)         No Securities which the Company has agreed to sell pursuant to this
Agreement and the Securities Purchase Agreements shall be deemed to have been
purchased and paid for, or sold by the Company, until such Securities shall have
been delivered to the Purchaser thereof against payment by such Purchaser. If
the Company shall default in its obligations to deliver the Securities to a
Purchaser whose offer it has accepted, the Company shall indemnify and hold the
Placement Agent harmless against any loss, claim, damage or expense arising from
or as a result of such default by the Company in accordance with the procedures
set forth in Section 8(III) herein.

 

3.               Representations And Warranties Of The Company.

 

(I)              The Company represents and warrants to the Placement Agent as
of the date hereof, and agrees with the Placement Agent that:

 

 

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(a)             The Company has prepared and filed in conformity with the
requirements of the Securities Act of 1933, as amended (the “Securities Act”),
and published rules and regulations thereunder (the “Rules and Regulations”)
adopted by the Securities and Exchange Commission (the “Commission”) a “shelf”
Registration Statement (as hereinafter defined) on Form S-3 (File No.
333-180731), which became effective as of May 17, 2012 (the “Effective Date”),
including a base prospectus relating to the Securities (the “Base Prospectus”),
and such amendments and supplements thereto as may have been required to the
date of this Agreement. The term “Registration Statement” as used in this
Agreement means the registration statement (including all exhibits, financial
schedules and all documents and information deemed to be a part of the
Registration Statement pursuant to Rule 430A and 430B of the Rules and
Regulations), as amended and/or supplemented to the date of this Agreement,
including the Base Prospectus. The Registration Statement is effective under the
Securities Act and no stop order preventing or suspending the effectiveness of
the Registration Statement or suspending or preventing the use of the Prospectus
has been issued by the Commission and no proceedings for that purpose have been
instituted or, to the knowledge of the Company, are threatened by the
Commission. The Company, if required by the Rules and Regulations of the
Commission, will file the Prospectus (as defined below), with the Commission
pursuant to Rule 424(b) of the Rules and Regulations. The term “Prospectus” as
used in this Agreement means the Prospectus, in the form in which it is to be
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations,
or, if the Prospectus is not to be filed with the Commission pursuant to Rule
424(b), the Prospectus in the form included as part of the Registration
Statement as of the Effective Date, except that if any revised prospectus or
prospectus supplement shall be provided to the Placement Agent by the Company
for use in connection with the Offering which differs from the Prospectus
(whether or not such revised prospectus or prospectus supplement is required to
be filed by the Company pursuant to Rule 424(b) of the Rules and Regulations),
the term “Prospectus” shall refer to such revised prospectus or prospectus
supplement, as the case may be, from and after the time it is first provided to
the Placement Agent for such use. Any preliminary prospectus or prospectus
subject to completion included in the Registration Statement or filed with the
Commission pursuant to Rule 424 of the Rules and Regulations is hereafter called
a “Preliminary Prospectus.” Any reference herein to the Registration Statement,
any Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 which were filed under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), on or before the last to occur of the Effective Date, the
date of the Preliminary Prospectus, or the date of the Prospectus, and any
reference herein to the terms “amend,” “amendment,” or “supplement” with respect
to the Registration Statement, any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include (i) the filing of any document under the
Exchange Act after the Effective Date, the date of such Preliminary Prospectus
or the date of the Prospectus, as the case may be, which is incorporated by
reference and (ii) any such document so filed. If the Company has filed an
abbreviated registration statement to register additional securities pursuant to
Rule 462(b) under the Rules (the “462(b) Registration Statement”), then any
reference herein to the Registration Statement shall also be deemed to include
such 462(b) Registration Statement.

 

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(b)            As of the Applicable Time (as defined below) and as of the
Initial Closing Date and the Second Closing Date, neither (i) the General Use
Free Writing Prospectus(es) (as defined below) issued at or prior to the
Applicable Time, and the Pricing Prospectus (as defined below) and the
information included on Schedule A hereto, all considered together
(collectively, the “General Disclosure Package”), (ii) any individual Limited
Use Free Writing Prospectus (as defined below), nor (iii) the bona fide
electronic road show (as defined in Rule 433(h)(5) of the Rules and Regulations
that has been made available without restriction to any person), when considered
together with the General Disclosure Package, included or will include any
untrue statement of a material fact or omitted or as of Initial Closing Date and
the Second Closing Date will omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from any
Issuer Free Writing Prospectus, (in reliance upon, and in conformity with,
written information furnished to the Company by the Placement Agent specifically
for inclusion therein, which information the parties hereto agree is limited to
the Placement Agent’s Information (as defined in Section 17). As used in this
paragraph (b) and elsewhere in this Agreement:

 

“Applicable Time” means 6:00 p.m., New York time, on the date of this Agreement.

 

“General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus
that is identified on SCHEDULE A to this Agreement.

 

“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as
defined in Rule 433 of the Rules and Regulations relating to the Securities in
the form filed or required to be filed with the Commission or, if not required
to be filed, in the form retained in the Company’s records pursuant to Rule
433(g) of the Rules and Regulations.

 

“Limited Use Free Writing Prospectuses” means any Issuer Free Writing Prospectus
that is not a General Use Free Writing Prospectus.

 

“Pricing Prospectus” means the Preliminary Prospectus, if any, and the Base
Prospectus, each as amended and supplemented immediately prior to the Applicable
Time, including any document incorporated by reference therein and any
prospectus supplement deemed to be a part thereof.

 

(c)             No order preventing or suspending the use of any Issuer Free
Writing Prospectus or the Prospectus relating to the Offering has been issued by
the Commission, and no proceeding for that purpose or pursuant to Section 7A of
the Securities Act has been instituted or to the knowledge of the Company
threatened by the Commission.

 

(d)            At the time the Registration Statement most recently became
effective, at the date of this Agreement and at the Initial Closing Date and the
Second Closing Date, the Registration Statement conformed and will conform in
all material respects to the requirements of the Securities Act and the Rules
and Regulations and did not and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; each Preliminary
Prospectus (if any), at the time of filing thereof, conformed in all material
respects to the requirements of the Securities Act and the Rules and
Regulations, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; the Prospectus, at the time the Prospectus was issued and
at the Initial Closing Date and the Second Closing Date, conformed and will
conform in all material respects to the requirements of the Securities Act and
the Rules and Regulations and did not and will not contain an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing representations and
warranties in this paragraph (d) shall not apply to information contained in or
omitted from the Registration Statement, any Preliminary Prospectus or the
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by the Placement Agent specifically for inclusion
therein, which information the parties hereto agree is limited to the Placement
Agent’s Information (as defined in Section 17).

 

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(e)             Each Issuer Free Writing Prospectus, if any, as of its issue
date and at all subsequent times through the completion of the Offering or until
any earlier date that the Company notified or notifies the Placement Agent as
described in Section 5(I)(e), did not, does not and will not include any
information that conflicted, conflicts or will conflict with the information
contained in the Registration Statement, Pricing Prospectus or the Prospectus,
including any document incorporated by reference therein and any prospectus
supplement deemed to be a part thereof that has not been superseded or modified,
or includes an untrue statement of a material fact or omitted or would omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing sentence does not apply to statements
in or omissions from any of the foregoing in reliance upon, and in conformity
with, written information furnished to the Company by the Placement Agent
specifically for inclusion therein, which information the parties hereto agree
is limited to the Placement Agent’s Information (as defined in Section 17).

 

(f)             The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder and none of such documents contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents are filed with the Commission, will conform in all material respects
to the requirements of the Securities Act or the Exchange Act, as applicable,
and the rules and regulations of the Commission thereunder and will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

 

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(g)            The Company is not an “ineligible issuer” in connection with the
Offering pursuant to Rules 164, 405 and 433 under the Securities Act. The
Company has not, directly or indirectly, distributed and will not distribute any
offering material in connection with the Offering other than any Preliminary
Prospectus, the Prospectus and other materials, if any, permitted under the
Securities Act and consistent with Section 5(I)(b) below. The Company will file
with the Commission all Issuer Free Writing Prospectuses (other than (i) a “road
show,” as described in Rule 433(d)(8) of the Rules and Regulations, and (ii) a
term sheet pursuant to Rule 433(d)(5) of the Rules and Regulations and (iii) a
“road show,” as defined in Rule 433(d)(8) of the Rules and Regulations), if any,
in the time and manner required under Rules 163(b)(2) and 433(d) of the Rules
and Regulations.

 

(h)            The Company and each of its subsidiaries (as defined in Section
15) have been duly organized and are validly existing as corporations or other
legal entities in good standing (or the foreign equivalent thereof) under the
laws of their respective jurisdictions of incorporation or organization, as
applicable. The Company and each of its subsidiaries are duly qualified to do
business and are in good standing or validly existing, as the case may be, as
foreign corporations or other legal entities in each jurisdiction in which their
respective ownership or lease of property or the conduct of their respective
businesses requires such qualification and have all power and authority
(corporate or other) necessary to own or hold their respective properties and to
conduct the businesses in which they are engaged, except where the failure to so
qualify or have such power or authority would not (i) have, singly or in the
aggregate, a material adverse effect on the condition (financial or otherwise),
results of operations, assets, business, properties or prospects of the Company
and its subsidiaries taken as a whole, or (ii) impair in any material respect
the ability of the Company to perform its obligations under this Agreement or to
consummate any transactions contemplated by this Agreement, the General
Disclosure Package or the Prospectus (any such effect as described in clauses
(i) or (ii), a “Material Adverse Effect”). The Company owns or controls,
directly or indirectly, only the following corporations, partnerships, limited
liability partnerships, limited liability companies, associations or other
entities: Kinergy Marketing, LLC, an Oregon limited liability company, Pacific
Ag. Products, LLC, a California limited liability company, Pacific Ethanol
Management Services Corporation, a Delaware corporation, and Pacific Ethanol
Development, LLC, a Delaware limited liability company, New PE Holdco LLC, a
Delaware limited liability company, Pacific Ethanol Holding Co. LLC, a Delaware
limited liability company, Pacific Ethanol Madera LLC, a Delaware limited
liability company, Pacific Ethanol Columbia, LLC, a Delaware limited liability
company, Pacific Ethanol Stockton, LLC, a Delaware limited liability company,
and Pacific Ethanol Magic Valley, LLC, a Delaware limited liability company.

 

(i)              The Company has the full right, power and authority to enter
into each of this Agreement, the Notes, Warrants, Indenture and the Securities
Purchase Agreements and to perform and to discharge its obligations hereunder
and thereunder, including, without limitation, the full right, power and
authority to issue, sell and deliver the Securities; and each of this Agreement
and each of the Securities Purchase Agreements has been duly authorized,
executed and delivered by the Company, and constitutes a valid and binding
obligation of the Company enforceable in accordance with its and their terms.

 

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(j)              The Notes to be issued and sold by the Company to the
Purchasers hereunder and under the Securities Purchase Agreements have been duly
and validly authorized and, at the Initial Closing Date and the Second Closing
Date, if any, will have been duly executed by the Company and, when
authenticated, issued and delivered in the manner provided for in the Indenture
and delivered against payment of the purchase price therefor as provided in this
Agreement and the Securities Purchase Agreements, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, will be duly and validly issued, fully paid and
non-assessable and free of any preemptive or similar rights and will conform to
the description thereof contained in the General Disclosure Package and the
Prospectus.

 

(k)            The Warrants to be issued and sold by the Company to the
Purchasers hereunder and under the Securities Purchase Agreements have been duly
and validly authorized and, at the Initial Closing Date and the Second Closing
Date, if any, will have been duly executed by the Company and, when delivered
against payment of the purchase price therefor as provided in this Agreement and
the Securities Purchase Agreements, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, will be duly and validly issued, fully paid and non-assessable and
free of any preemptive or similar rights and will conform to the description
thereof contained in the General Disclosure Package and the Prospectus.

 

(l)              The Warrant Shares will, upon issuance, conform to all
statements relating thereto contained or incorporated by reference in the
Registration Statement, the General Disclosure Package and the Prospectus. The
Warrant Shares, when issued and delivered against payment therefore in
accordance with the terms of the Warrants, have been duly authorized and upon
issuance will be validly issued and will be fully paid and non-assessable; no
holder of such shares will be subject to personal liability by reason of being
such a holder; and the issuance of such shares upon such conversion will not be
subject to the pre-emptive or other similar rights of any security holder of the
Company.

 

(m)          The Conversion Shares and the Interest/Amortization Shares conform
to all statements relating thereto contained or incorporated by reference in the
Registration Statement, the General Disclosure Package and the Prospectus. Upon
issuance and delivery of the Notes in accordance with this Agreement, the
Indenture and the Securities Purchase Agreements, the Notes will be convertible
at the option of the holder thereof for Conversion Shares in accordance with the
terms of the Notes and the Indenture; the Conversion Shares and the
Interest/Amortization Shares issuable upon conversion of the Notes and/or for
amortization and interest payments have been duly authorized, and 30,000,000
shares of Common Stock have been reserved for issuance upon such conversion
and/or payment of such interest/amortization by all necessary corporate action
and such shares, when issued upon such conversion or payment, will be validly
issued and will be fully paid and non-assessable; no holder of such shares will
be subject to personal liability by reason of being such a holder; and the
issuance of such shares upon such conversion will not be subject to the
pre-emptive or other similar rights of any security holder of the Company.

 

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(n)            The Indenture has been duly authorized by the Company and will be
duly qualified (within the time permissible under the rules governing the use of
Form T-1) under the Trust Indenture Act of 1939, as amended (the “Trust
Indenture Act”) and, when duly executed and delivered by the Company and the
Trustee, will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.

 

(o)            The Company has an authorized capitalization as set forth in the
Pricing Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable, have been issued in compliance with United States federal and
state securities laws, and conform to the description thereof contained in the
General Disclosure Package and the Prospectus. As of March 26, 2013, there were
155,415,594 shares of Common Stock, par value $0.001 per share, issued and
outstanding, no shares of Series A preferred stock, par value $0.001 per share,
of the Company issued and outstanding and 926,942 shares of Series B Preferred
Stock, par value $0.001 per share, of the Company issued and outstanding, and
111,257,122 shares of Common Stock were issuable upon the exercise of all
options, warrants and convertible securities outstanding as of such date. Since
such date, the Company has not issued any securities, other than Common Stock of
the Company issued pursuant to the exercise of stock options previously
outstanding under the Company’s stock option plans or the issuance of restricted
Common Stock pursuant to employee stock purchase plans. All of the Company’s
options, warrants and other rights to purchase or exchange any securities for
shares of the Company’s capital stock have been duly authorized and validly
issued and were issued in compliance with United States federal and state
securities laws. None of the outstanding shares of Common Stock was issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding shares of capital stock, options, warrants, preemptive
rights, rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital
stock of the Company or any of its subsidiaries other than those described above
or accurately described in the General Disclosure Package. The description of
the Company’s stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, as described in the General
Disclosure Package and the Prospectus, accurately and fairly present the
information required to be shown with respect to such plans, arrangements,
options and rights.

 

(p)            All the outstanding shares of capital stock or other equity
interests of each subsidiary of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and, except to the extent set
forth in the General Disclosure Package and the Prospectus, are owned by the
Company directly or indirectly through one or more wholly-owned subsidiaries,
free and clear of any claim, lien, encumbrance, security interest, restriction
upon voting or transfer or any other claim of any third party.

 

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(q)            The execution, delivery and performance of this Agreement, the
Securities Purchase Agreements, the Indenture, the Notes, the Warrants, the DTC
Agreement by the Company, the issuance and sale of the Notes, the Conversion
Shares, the Warrants and the Warrant Shares by the Company and the consummation
of the transactions contemplated hereby and thereby will not (with or without
notice or lapse of time or both) conflict with or result in a breach or
violation of any of the terms or provisions of, constitute a default or Debt
Repayment Triggering Event (as defined below) under, give rise to any right of
termination or other right or the cancellation or acceleration of any right or
obligation or loss of a benefit under, or give rise to the creation or
imposition of any lien, encumbrance, security interest, claim or charge upon any
property or assets of the Company or any subsidiary pursuant to, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the certificate of incorporation or
by-laws (or analogous governing instruments, as applicable) of the Company or
any of its subsidiaries or any law, statute, rule, regulation, judgment, order
or decree of any court or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or any of their
properties or assets. A “Debt Repayment Triggering Event” means any event or
condition that gives, or with the giving of notice or lapse of time would give
the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder’s behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the Company
or any of its subsidiaries.

 

(r)             Except for the registration of the Notes, the Conversion Shares
and the Warrants under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state or foreign securities laws, the Financial
Industry Regulatory Authority (“FINRA”) and the Nasdaq Capital Market (“Nasdaq
CM”) in connection with the Offering and the listing of any other shares of
Common Stock on the Nasdaq CM related to the Offering, no consent, approval,
authorization or order of, or filing, qualification or registration (each an
“Authorization”) with, any court, governmental or non-governmental agency or
body, foreign or domestic, which has not been made, obtained or taken and is not
in full force and effect, is required for the execution, delivery and
performance of this Agreement, the Notes, the Indenture, the Warrants and the
Securities Purchase Agreements by the Company, the offer or sale of the
Securities or the consummation of the transactions contemplated hereby or
thereby; and no event has occurred that allows or results in, or after notice or
lapse of time or both would allow or result in, revocation, suspension,
termination or invalidation of any such Authorization or any other impairment of
the rights of the holder or maker of any such Authorization. All corporate
approvals (including those of stockholders and of the holders of the Company’s
Senior Unsecured Notes issued January 11, 2013 and the waiver of notice
provisions applicable to participation rights available under the Securities
Purchase Agreement dated December 8, 2011) necessary for the Company to
consummate the transactions contemplated by this Agreement have been obtained
and are in effect, or will be obtained and made under the Securities Act, the
Trust Indenture Act, and state securities or Blue Sky laws and regulations, as
applicable.

 

10

 

 

(s)             Hein & Associates LLP, who have certified certain financial
statements and related schedules included or incorporated by reference in the
Registration Statement, the General Disclosure Package and the Prospectus, is an
independent registered public accounting firm as required by the Securities Act
and the Rules and Regulations and the Public Company Accounting Oversight Board
(United States) (the “PCAOB”). Except as disclosed in the Registration Statement
and as pre-approved in accordance with the requirements set forth in Section 10A
of the Exchange Act, Hein & Associates LLP has not been engaged by the Company
to perform any “prohibited activities” (as defined in Section 10A of the
Exchange Act).

 

(t)              The Company’s financial statements, together with the related
notes and schedules, included or incorporated by reference in the General
Disclosure Package, the Prospectus and in the Registration Statement fairly
present the financial position and the results of operations and changes in
financial position of the Company and its consolidated subsidiaries and other
consolidated entities at the respective dates or for the respective periods
therein specified. Such statements and related notes and schedules have been
prepared in accordance with the generally accepted accounting principles in the
United States (“GAAP”) applied on a consistent basis throughout the periods
involved except as may be set forth in the related notes included or
incorporated by reference in the General Disclosure Package. The Company’s
financial statements, together with the related notes and schedules, included or
incorporated by reference in the General Disclosure Package and the Prospectus
comply in all material respects with the Securities Act, the Exchange Act, and
the Rules and Regulations and the rules and regulations under the Exchange Act.
No other financial statements or supporting schedules or exhibits are required
by the Securities Act or the Rules and Regulations to be described, or included
or incorporated by reference in the Registration Statement, the General
Disclosure Package or the Prospectus. There is no pro forma or as adjusted
financial information which is required to be included in the Registration
Statement, the General Disclosure Package, or and the Prospectus or a document
incorporated by reference therein in accordance with the Securities Act and the
Rules and Regulations, which has not been included or incorporated as so
required. The summary and selected financial data included or incorporated by
reference in the General Disclosure Package, the Prospectus and each
Registration Statement fairly present the information shown therein as at their
respective dates and for the respective periods specified and are derived from
the consolidated financial statements set forth or incorporated by reference in
the Registration Statement, the Pricing Prospectus and the Prospectus and other
financial information. All information contained in the Registration Statement,
the General Disclosure Package and the Prospectus regarding “non-GAAP financial
measures” (as defined in Regulation G) complies with Regulation G and Item 10 of
Regulation S-K, to the extent applicable.

 

(u)            Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the General Disclosure Package, any material loss
or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the General Disclosure Package; and, since such date, there has
not been any change in the capital stock or long-term debt of the Company or any
of its subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the business,
assets, general affairs, management, financial position, prospects,
stockholders’ equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated in
the General Disclosure Package.

 

11

 

 

 

(v)            There is no legal or governmental action, suit, claim or
proceeding pending to which the Company or any of its subsidiaries is a party or
of which any property or assets of the Company or any of its subsidiaries is the
subject, which is required to be described in the Registration Statement, the
General Disclosure Package or the Prospectus or a document incorporated by
reference therein and is not described therein, or which, singly or in the
aggregate, if determined adversely to the Company or any of its subsidiaries,
could have a Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby; and to the Company’s knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others.

 

(w)           Except as described in the Registration Statement, the General
Disclosure Package or the Prospectus, neither the Company nor any of its
subsidiaries is in (i) violation of its certificate of incorporation or by-laws
(or analogous governing instrument, as applicable), (ii) default in any respect,
and no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any term,
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which it is bound or to which any of its or their property or assets
is/are subject or (iii) violation in any respect of any law, ordinance,
governmental rule, regulation or court order, decree or judgment to which it or
its property or assets may be subject except, in the case of clauses (ii) and
(iii) of this paragraph (s), for any violations or defaults which, singly or in
the aggregate, would not have a Material Adverse Effect.

 

(x)            The Company and each of its subsidiaries possesses all licenses,
certificates, authorizations and permits issued by, and have made all
declarations and filings with, the appropriate local, state, federal or foreign
regulatory agencies or bodies which are necessary or desirable for the ownership
of their respective properties or the conduct of their respective businesses as
described in the General Disclosure Package and the Prospectus (collectively,
the “Governmental Permits”) except where any failures to possess or make the
same, singly or in the aggregate, would not have a Material Adverse Effect. The
Company and its subsidiaries are in compliance with all such Governmental
Permits; all such Governmental Permits are valid and in full force and effect,
except where the validity or failure to be in full force and effect would not,
singly or in the aggregate, have a Material Adverse Effect. All such
Governmental Permits are free and clear of any restriction or condition that are
in addition to, or materially different from those normally applicable to
similar licenses, certificates, authorizations and permits. Neither the Company
nor any subsidiary has received notification of any nonrenewal, revocation,
modification, suspension, termination or invalidation (or proceedings related
thereto) of any such Governmental Permit and to the knowledge of the Company, no
event has occurred that allows or results in, or after notice or lapse of time
or both would allow or result in, revocation, modification, suspension,
termination or invalidation (or proceedings related thereto) of any such
Governmental Permit and the Company has no reason to believe that any such
Governmental Permit will not be renewed; and the Company and its subsidiaries
are members in good standing of each federal, state or foreign exchange, board
of trade, clearing house or association and self-regulatory or similar
organization, in each case as necessary to conduct their respective businesses
as described in the General Disclosure Package and the Prospectus.

 

12

 

 

(y)            Neither the Company nor any of its subsidiaries is or, after
giving effect to the Offering and the application of the proceeds thereof as
described in the General Disclosure Package and the Prospectus, will become an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations of the Commission thereunder.

 

(z)             Neither the Company nor any of its subsidiaries, or any of their
respective officers, directors or affiliates has taken or will take, directly or
indirectly, any action designed or intended to stabilize or manipulate the price
of any security of the Company, or which caused or resulted in, or which might
in the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.

 

(aa)          The Company and its subsidiaries own or possess legally
enforceable rights from all necessary third parties (the “Licensors”) to use all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets,
know-how and other intellectual property rights necessary for the conduct of its
business described in the General Disclosure Package and the Prospectus, and the
Company is not aware of any claim to the contrary or any challenge by any other
person to the rights of the Company or its subsidiaries with respect to the
foregoing. Except where such failure to make the same would not, singly or in
the aggregate, have a Material Adverse Effect, the Company or its subsidiaries
is listed in the records of the appropriate United States, state, or foreign
registry as the sole current owner of record for each intellectual property
registration and application for registration owned by the Company or its
subsidiaries, respectively, except for such intellectual property applications
as have been filed in the name of employees who are contractually obligated to
assign all of their rights in and to such intellectual property applications to
the Company, and all such applications and registrations have been duly
maintained, are subsisting, in full force and effect, have not been cancelled,
expired, or abandoned. Neither the Company nor its subsidiaries has received
written notification of any revocation or modification of any registered
intellectual property right, or has any reason to believe that any renewable
registered intellectual property right will not be renewed, other than any
revocation, modification or failure to renew that would not, singly or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries as now conducted, and as proposed to be conducted as described in
the General Disclosure Package and the Prospectus, does not and will not
infringe or conflict with any patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, know-how or other intellectual property
right or franchise right of any person, except where such infringement would
not, singly or in the aggregate, have a Material Adverse Effect. There are no
oppositions, cancellations, invalidity proceedings, re-examination proceedings,
suits, arbitrations, or threatened claims pending or for which notice has been
provided or, to the knowledge of Company, threatened, challenging the Company's
or its subsidiaries’ ownership of, right to use, or the validity or
enforceability of any patent, trademark, service mark, trade name, copyright,
trade secret, license, know-how or other intellectual property right or
franchise right of any person which would, singly or in the aggregate, have a
Material Adverse Effect.

 

13

 

 

 

(bb)         Patent applications for all inventions owned by or licensed to the
Company or its subsidiaries that are material to the conduct of the business of
the Company or its subsidiaries in the manner in which it has been or is
contemplated to be conducted have been duly and properly filed or caused to be
filed with the United States Patent and Trademark Office (“PTO”) and, in some
cases, applicable foreign and international patent authorities. Assignments for
all patents and patent applications, including, without limitation any
continuations, divisionals, continuations-in-part, renewals, reissues and
applications for registration of any of the foregoing (collectively, the
“Patents”) owned by or licensed to the Company or its subsidiaries that are
material to the conduct of the business of the Company or its subsidiaries in
the manner in which it has been or is contemplated to be conducted have been
properly executed and recorded for each named inventor. To the knowledge of the
Company, all printed publications and patent references material to the
patentability of the inventions claimed in the Patents have been disclosed to
those patent offices so requiring. To the knowledge of the Company, each of the
Company, its subsidiaries and their respective assignors or the Licensors, as
applicable, has met its duty of candor and good faith to the PTO for the
Patents. To the knowledge of the Company, no material misrepresentation has been
made to any patent office in connection with the Patents. The Company is not
aware of any facts material to a determination of patentability regarding the
Patents not disclosed to the PTO or other applicable patent office. The Company
is not aware of any facts not disclosed to the PTO or other applicable patent
office that would preclude the patentability, validity or enforceability of any
patent or patent application in the Patents. The Company has no knowledge of any
facts that would preclude the Company, its subsidiaries or the Licensors, as
applicable, from having clear title to the patents and patent applications in
the Patents.

 

(cc)          To the knowledge of the Company, no third party is engaging in any
activity that infringes, misappropriates or otherwise violates any patent,
trademark, service mark, trade name, copyright, trade secret, license, know-how
or any other intellectual property right or franchise right owned by or licensed
to the Company or its subsidiaries, except as described in the General
Disclosure Package and the Prospectus and except for such activities that,
singly or in the aggregate, would not have a Material Adverse Effect.

 

(dd)         With respect to each material agreement governing all rights in and
to any patent, trademark, service mark, trade name, copyright, trade secret,
license, know-how or any other intellectual property right or franchise right
licensed by or licensed to the Company or its subsidiaries: (i) neither the
Company nor its subsidiaries has received any notice of indemnification,
termination or cancellation under such agreement, received any notice of breach
or default under such agreement, which breach has not been cured, or granted to
any third party any rights, adverse or otherwise, under such agreement that
would constitute a material breach of such agreement; and (ii) none of the
Company, its subsidiaries nor, to the knowledge of the Company, any other party
to such agreement, is in breach or default thereof in any material respect, and
no event has occurred that, with notice or lapse of time, would constitute such
a material breach or default or permit termination, modification or acceleration
under such agreement.

 

14

 

 

 

(ee)          Except as described in the General Disclosure Package, the Company
and each of its subsidiaries have good and marketable title in fee simple to, or
have valid rights to lease or otherwise use, all items of real or personal
property which are material to the business of the Company and its subsidiaries
taken as a whole, in each case free and clear of all liens, encumbrances,
security interests, claims and defects that do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
subsidiaries; and all of the leases and subleases material to the business of
the Company and its subsidiaries, considered as one enterprise, and under which
the Company or any of its subsidiaries holds properties described in the General
Disclosure Package and the Prospectus, are in full force and effect, and neither
the Company nor any subsidiary has received any notice of any material claim of
any sort that has been asserted by anyone adverse to the rights of the Company
or any subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary to the
continued possession of the leased or subleased premises under any such lease or
sublease.

 

(ff)           There is (A) no significant unfair labor practice complaint
pending against the Company, or any of its subsidiaries, nor, to the knowledge
of the Company, threatened against it or any of its subsidiaries, before the
National Labor Relations Board, any state or local labor relation board or any
foreign labor relations board, and no significant grievance or significant
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Company or any of its subsidiaries, or, to
the knowledge of the Company, threatened against it and (B) no labor disturbance
by the employees of the Company or any of its subsidiaries exists or, to the
Company’s knowledge, is imminent, and the Company is not aware of any existing
or imminent labor disturbance by the employees of any of its or its subsidiaries
principal suppliers, manufacturers, customers or contractors, that could
reasonably be expected, singly or in the aggregate, to have a Material Adverse
Effect. The Company is not aware that any key employee or significant group of
employees of the Company or any subsidiary plans to terminate employment with
the Company or any such subsidiary.

 

 

15

 

 

(gg)         No “prohibited transaction” (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder (“ERISA”), or Section 4975
of the Internal Revenue Code of 1986, as amended from time to time (the “Code”))
or “accumulated funding deficiency” (as defined in Section 302 of ERISA) or any
of the events set forth in Section 4043(b) of ERISA (other than events with
respect to which the thirty (30)-day notice requirement under Section 4043 of
ERISA has been waived) has occurred or could reasonably be expected to occur
with respect to any employee benefit plan of the Company or any of its
subsidiaries which could, singly or in the aggregate, have a Material Adverse
Effect. Each employee benefit plan of the Company or any of its subsidiaries is
in compliance in all material respects with applicable law, including ERISA and
the Code. The Company and its subsidiaries have not incurred and could not
reasonably be expected to incur liability under Title IV of ERISA with respect
to the termination of, or withdrawal from, any pension plan (as defined in
ERISA). Each pension plan for which the Company or any of its subsidiaries would
have any liability that is intended to be qualified under Section 401(a) of the
Code is so qualified, and nothing has occurred, whether by action or by failure
to act, which could, singly or in the aggregate, cause the loss of such
qualification.

 

(hh)         The Company and its subsidiaries are in compliance with all
applicable foreign, federal, state and local statutes, laws, including the
common law rules, and regulations, codes, ordinances, orders, judgments or
decrees relating to the use, treatment, storage and disposal of hazardous or
toxic substances or wastes and the protection of health and safety or the
environment, including without limitation, natural resources, which are
applicable to their business (“Environmental Laws”), except where the failure to
comply could not, singularly or in the aggregate, reasonably be expected to have
a Material Adverse Effect. There has been no use, storage, generation,
transportation, handling, treatment, disposal, discharge, emission, or other
release of any kind of hazardous or toxic substances or wastes by, due to, or
caused by the Company or any of its subsidiaries (or, to the Company’s
knowledge, any other entity for whose acts or omissions the Company or any of
its subsidiaries is or may otherwise be liable) upon under, at or from any of
the property now or previously owned, leased or operated by the Company or any
of its subsidiaries, or upon any other property, in violation of any
Environmental Law, or Governmental Permit issued thereunder or which would, give
rise to any liability, except for any violation or liability which could not
reasonably be expected to have, singularly or in the aggregate with all such
violations and liabilities, a Material Adverse Effect; and there has been no
disposal, discharge, emission or other release of any kind onto under, at or
from such property or into the environment of any toxic hazardous substances or
wastes with respect to which the Company has knowledge, except for any such
disposal, discharge, emission, or other release of any kind which could not
reasonably be expected to have, singularly or in the aggregate with all such
discharges and other releases, a Material Adverse Effect.

 

(ii)            The Company and its subsidiaries each (i) have timely filed all
necessary federal, state, local and foreign tax returns, and all such returns
were true, complete and correct, (ii) have paid all federal, state, local and
foreign taxes, assessments, governmental or other charges due and payable for
which it is liable, including, without limitation, all sales and use taxes and
all taxes which the Company or any of its subsidiaries is obligated to withhold
from amounts owing to employees, creditors and third parties, and (iii) do not
have any tax deficiency or claims outstanding or assessed or, to its knowledge,
proposed against any of them, except those, in each of the cases described in
clauses (i), (ii) and (iii) of this paragraph (ff), that would not, singly or in
the aggregate, have a Material Adverse Effect. The Company and its subsidiaries
have not engaged in any transaction which is a corporate tax shelter or which
could be characterized as such by the Internal Revenue Service or any other
taxing authority. The accruals and reserves on the books and records of the
Company and its subsidiaries in respect of tax liabilities for any taxable
period not yet finally determined are adequate to meet any assessments and
related liabilities for any such period, and since December 31, 2007, neither
the Company nor any of its subsidiaries has incurred any liability for taxes
other than in the ordinary course.

 

16

 

 

(jj)            The Company and each of its subsidiaries carry, or are covered
by, insurance provided by recognized, financially sound and reputable
institutions with policies in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses in similar industries. Neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able (i) to renew its
existing insurance coverage as and when such policies expire or (ii) to obtain
comparable coverage from similar institutions as may be necessary or appropriate
to conduct its business as now conducted and at a cost that would not result in
a Material Adverse Effect. Neither the Company nor any of its subsidiaries have
been denied any insurance coverage that they have sought or for which they have
applied. Neither the Company nor any of its subsidiaries has received written
notice from any insurer, agent of such insurer or the broker of the Company or
any of its subsidiaries that any material capital improvements or any other
material expenditures (other than premium payments) are required or necessary to
be made in order to continue such insurance. Neither the Company nor any of its
subsidiaries insure risk of loss through any captive insurance, risk retention
group, reciprocal group or by means of any fund or pool of assets specifically
set aside for contingent liabilities other than as described in the General
Disclosure Package.

 

(kk)         The Company and each of its subsidiaries maintains a system of
internal control over financial reporting (as such term is defined in Rule
13a-15 of the General Rules and Regulations under the Exchange Act (the
“Exchange Act Rules”)) that complies with the requirements of the Exchange Act
and has been designed by the Company’s principal executive officer and principal
financial officer, or under their supervision, to provide reasonable assurances
that (i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management’s general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company’s internal control over financial reporting is
effective. Since the end of the Company’s most recent audited fiscal year, there
has been (A) no material weakness in the Company’s internal control over
financial reporting (whether or not remediated) and (B) no change in the
Company’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting. The Company’s internal control over financial
reporting is overseen by the Audit Committee of the Board of Directors of the
Company (the “Audit Committee”) in accordance with the Exchange Act Rules. The
Company has not publicly disclosed or reported to the Audit Committee or to the
Board, and within the next 90 days the Company does not reasonably expect to
publicly disclose or report to the Audit Committee or the Board, a significant
deficiency, material weakness, change in internal control over financial
reporting or fraud involving management or other employees who have a
significant role in the internal control over financial reporting (each an
“Internal Control Event”), any violation of, or failure to comply with, the U.S.
Securities Laws, or any matter which, if determined adversely, would have a
Material Adverse Effect.

 

17

 

 

 

(ll)            A member of the Audit Committee has confirmed to the Chief
Executive Officer, Chief Financial Officer or General Counsel of the Company
that, except as set forth in the General Disclosure Package, the Audit Committee
is not reviewing or investigating, and neither the Company’s independent
auditors nor its internal auditors have recommended that the Audit Committee
review or investigate, (i) adding to, deleting, changing the application of or
changing the Company’s disclosure with respect to, any of the Company’s material
accounting policies, (ii) any matter which could result in a restatement of the
Company’s financial statements for any annual or interim period during the
current or prior three fiscal years, or (iii) any Internal Control Event.

 

(mm)     The minute books of the Company and each of its subsidiaries that would
be a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation
S-X (such a significant subsidiary of the Company, a “Significant Subsidiary”)
have been made available to the Placement Agent and counsel for the Placement
Agent, and such books (i) contain a complete summary of all meetings and actions
of the board of directors (including each board committee) and shareholders of
the Company (or analogous governing bodies and interest holders, as applicable),
and each of its Significant Subsidiaries since the time of their respective
incorporation or organization through the date of the latest meeting and action,
and (ii) accurately in all material respects reflect all transactions referred
to in such minutes.

 

(nn)         There is no franchise agreement, lease, contract, or other
agreement or document required by the Securities Act or by the Rules and
Regulations to be described in the General Disclosure Package and in the
Prospectus or a document incorporated by reference therein or to be filed as an
exhibit to the Registration Statement or a document incorporated by reference
therein which is not so described or filed therein as required; and all
descriptions of any such franchise agreement, leases, contracts, or other
agreements or documents contained the Registration Statement or the Prospectus
or in a document incorporated by reference therein are accurate and complete
descriptions of such documents in all material respects. Other than as described
in the General Disclosure Package, no such franchise agreement, lease, contract
or other agreement has been suspended or terminated for convenience or default
by the Company or any of the other parties thereto, and neither the Company nor
any of its subsidiaries has received notice nor does the Company have knowledge
of any such pending or threatened suspension or termination.

 

(oo)         No relationship, direct or indirect, exists between or among the
Company and any of its subsidiaries on the one hand, and the directors,
officers, stockholders (or analogous interest holders), customers or suppliers
of the Company or any of its subsidiaries or any of their affiliates on the
other hand, which is required to be described in the General Disclosure Package
and the Prospectus or a document incorporated by reference therein and which is
not so described.

 

18

 

 

(pp)         No person or entity has the right to exercise any preemptive rights
to purchase the Company’s securities, or to require registration of shares of
Common Stock or other securities convertible into or exercisable or exchangeable
for Common Stock of the Company or any of its subsidiaries because of the filing
or effectiveness of the Registration Statement or otherwise, except for persons
and entities who have expressly waived such rights in writing or who have been
given timely and proper written notice and have failed to exercise such rights
within the time or times required under the terms and conditions of such right.
Except as described in the General Disclosure Package, there are no persons with
preemptive rights or other rights to subscribe for securities of the Company, or
registration rights or similar rights to have any securities registered by the
Company or any of its subsidiaries under the Securities Act.

 

(qq)         Neither the Company nor any of its subsidiaries owns any “margin
securities” as that term is defined in Regulation U of the Board of Governors of
the Federal Reserve System (the “Federal Reserve Board”), and none of the
proceeds of the sale of the Securities will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Securities to be considered a “purpose credit” within the meanings of
Regulations T, U or X of the Federal Reserve Board.

 

(rr)           Other than any contracts or agreements between the Company and
the Placement Agent, neither the Company nor any of its subsidiaries is a party
to any contract, agreement or understanding with any person that would give rise
to a valid claim against the Company or the Placement Agent for a brokerage
commission, finder’s fee or like payment in connection with the Offering or any
transaction contemplated by this Agreement, the Securities Purchase Agreements,
the Registration Statement, the General Disclosure Package or the Prospectus.

 

(ss)          Except as described in the General Disclosure Package and the
Prospectus, no subsidiary of the Company is currently prohibited, directly or
indirectly, under any agreement or other instrument to which it is a party or is
subject, from paying any dividends to the Company, from making any other
distribution on such subsidiary’s capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary’s properties or assets to the Company or any other
subsidiary of the Company.

 

(tt)            Since the date as of which information is given in the General
Disclosure Package and the Prospectus through the date hereof, and except as set
forth in the General Disclosure Package, neither the Company nor any of its
subsidiaries has (i) issued or granted any securities other than options to
purchase Common Stock pursuant to the Company’s stock option plan or shares of
Common Stock issued or issuable upon exercise thereof, (ii) incurred any
material liability or obligation, direct or contingent, other than liabilities
and obligations which were incurred in the ordinary course of business, (iii)
entered into any material transaction other than in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.

 

19

 

 

(uu)         No forward-looking statement (within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act) contained in either the
General Disclosure Package or the Prospectus has been made or reaffirmed without
a reasonable basis or has been disclosed other than in good faith.

 

(vv)         The Company is in compliance in all material respects with all
applicable effective provisions of the Sarbanes-Oxley Act of 2002 and any
related rules and regulations promulgated by the Commission thereunder (the
“Sarbanes-Oxley Act”).

 

(ww)      The Company’s Common Stock is registered pursuant to Section 12(b) or
12(g) of the Exchange Act and is listed on the NASDAQ CM, and the Company has
taken no action designed to, or reasonably likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the NASDAQ CM. Except as described in the
General Disclosure Package or the Prospectus, the Company has not received any
notification that the Commission, FINRA or the NASDAQ Stock Market LLC is
currently contemplating terminating such registration or listing. No consent,
approval, authorization or order of, or filing, notification or registration
with, the NASDAQ CM is required for the listing and trading of the shares of
Common Stock on the NASDAQ CM, except for (i) a Notification Form: Listing of
Additional Shares; and (ii) a Notification Form: Change in the Number of Shares
Outstanding.

 

(xx)         Except as described in the General Disclosure Package or the
Prospectus, the Company is, and after giving effect to the Offering will be, in
compliance in all material respects with all applicable corporate governance
requirements set forth in the NASDAQ Marketplace Rules.

 

(yy)         Neither the Company nor any of its subsidiaries nor, to the
Company’s knowledge, any director, officer, agent, employee, affiliate or other
person acting on behalf of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any federal,
state, local or foreign office in violation of any law (including the Foreign
Corrupt Practices Act of 1977, as amended) or of the character required to be
disclosed in the Registration Statement, the General Disclosure Package or the
Prospectus or a document incorporated by reference therein.

 

(zz)          There are no transactions, arrangements or other relationships
between and/or among the Company, any of its affiliates (as such term is defined
in Rule 405 of the Rules and Regulations) and any unconsolidated entity,
including, but not limited to, any structured finance, special purpose or
limited purpose entity that could reasonably be expected to materially affect
the Company’s or any of its subsidiaries’ liquidity or the availability of or
requirements for their capital resources required to be described in the General
Disclosure Package and the Prospectus or a document incorporated by reference
therein which have not been described as required.

 

20

 

 

(aaa)       The statistical, industry and market related data included or
incorporated by reference in the Registration Statement, the General Disclosure
Package and the Prospectus are based on or derived from sources that the Company
believes to be reliable and accurate, and such data agree with the sources from
which they are derived.

 

(bbb)      The operations of the Company and its subsidiaries are and have been
conducted at all times in compliance with applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, the USA PATRIOT Act, applicable money laundering statutes of
all jurisdictions and the applicable rules, related rules and regulations
thereunder (collectively, the “Money Laundering Laws”), and no action, suit or
proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any of its subsidiaries with respect to
the Money Laundering Laws is pending, or to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries.

 

(ccc)       Neither the Company nor any of its subsidiaries nor, to the
knowledge of the Company, any director, officer, agent, employee or affiliate of
the Company or any of its subsidiaries is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”); and the Company will not directly or indirectly
use the proceeds of the Offering, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture partner or other person
or entity, for the purpose of financing the activities of any person currently
subject to any U.S. sanctions administered by OFAC.

 

(ddd)      Neither the Company nor any subsidiary nor any of their affiliates
(within the meaning of FINRA’s Rule 5121(f)(1)) directly or indirectly controls,
is controlled by, or is under common control with, or is an associated person
of, any member firm of FINRA (within the meaning of Article I, Section 1(ee) of
the By-laws of FINRA). At the time the Registration Statement was originally
declared effective, the Company met, and as of the date hereof meets, the then
applicable requirements for the use of Form S-3, including pursuant to
Instruction B.1. therunder, under the Securities Act.

 

(eee)       No approval of the shareholders of the Company under the rules and
regulations of NASDAQ (including Rule 5635 of the NASDAQ Marketplace Rules) is
required to issue and deliver the Series A Notes, Series A Warrants and Series B
Warrants to the Purchasers.

 

(fff)         As of the Applicable Time, and at the Closing Date, the Company is
not “insolvent” (as such term is defined under Section 101(32) of the U.S.
Bankruptcy Code (Title 11 of the United States Code)).

 

(ggg)      The conditions to the use of Form S-3 in connection with the offering
and sale of the Securities as contemplated hereby have been satisfied. The
Registration Statement meets, and the offering and sale of the Securities as
contemplated hereby complies with, the requirements of Rule 415 under the
Securities Act (including, without limitation, Rule 415(a)(4) and (a)(5) of the
Rules and Regulations).

 

21

 

 

Any certificate signed by or on behalf of the Company and delivered to the
Placement Agent or to counsel for the Placement Agent shall be deemed to be a
representation and warranty by the Company to the Placement Agent and the
Purchasers as to the matters covered thereby.

 

4.               The Closing. The time and date of closing and delivery of the
documents required to be delivered to the Placement Agent pursuant to Sections 5
and 7 hereof shall be as follows: (i) the closing for the Series A Notes, Series
A Warrants and Series B Warrants, at 5:00 P.M., New York time, on March 28, 2013
(the “Initial Closing Date”), and (ii) the closing for the Series B Notes, at
such date and time as agreed upon by the Company and LCM following the
satisfaction of the closing conditions related to such second tranche securities
(the “Second Closing Date”), each to be held at the office of Troutman Sanders
LLP, 5 Park Plaza, Suite 1400, Irvine, CA 92614.

 

5.               Further Agreements Of The Company.

 

(I)              The Company agrees with the Placement Agent:

 

(a)             To prepare the Rule 462(b) Registration Statement, if necessary,
in a form approved by the Placement Agent and file such Rule 462(b) Registration
Statement with the Commission on the date following the date hereof, and the
Company shall at the time of such filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Rules and
Regulations; to prepare the Prospectus in a form approved by the Placement Agent
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rules 430A, 430B and 430C of the Rules and
Regulations and to file such Prospectus pursuant to Rule 424(b) of the Rules and
Regulations not later than the second (2nd) business day following the execution
and delivery of this Agreement or, if applicable, such earlier time as may be
required by Rule 430A of the Rules and Regulations; to promptly notify the
Placement Agent of the Company’s intention to file or prepare any supplement or
amendment to any Registration Statement or to the Prospectus and to make no
amendment or supplement to the Registration Statement, the General Disclosure
Package or to the Prospectus; to advise the Placement Agent, promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the General
Disclosure Package or the Prospectus or any amended Prospectus has been filed
and to furnish the Placement Agent copies thereof; to file promptly all
materials required to be filed by the Company with the Commission pursuant to
Rule 433(d) or 163(b)(2), as the case may be, of the Rules and Regulations; to
file promptly all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the
Prospectus and for so long as the delivery of a prospectus is required in
connection with the Offering; to advise the Placement Agent, promptly after it
receives notice thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus, any
Issuer Free Writing Prospectus or the Prospectus, of the suspension of the
qualification of the Securities and Warrant Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement, the General Disclosure Package or the Prospectus
or for additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus, any Issuer Free Writing Prospectus or the Prospectus or suspending
any such qualification, and promptly to use its best efforts to obtain the
withdrawal of such order.

 

22

 

 

(b)            The Company represents and agrees that, unless it obtains the
prior consent of the Placement Agent, it has not made and will not make any
offer relating to the Securities that would constitute a “free writing
prospectus” as defined in Rule 405 of the Rules and Regulations (each, a
“Permitted Free Writing Prospectus”); provided that the prior written consent of
the Placement Agent hereto shall be deemed to have been given in respect of the
General Use Free Writing Prospectus(es), included in Schedule A hereto. The
Company represents that it has treated and agrees that it will treat each
Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, comply
with the requirements of Rules 164 and 433 of the Rules and Regulations
applicable to any Issuer Free Writing Prospectus, including the requirements
relating to timely filing with the Commission, legending and record keeping and
will not take any action that would result in the Placement Agent or the Company
being required to file with the Commission pursuant to Rule 433(d) of the Rules
and Regulations a free writing prospectus prepared by or on behalf of such
Placement Agent that such Placement Agent otherwise would not have been required
to file thereunder.

 

(c)             If at any time when a Prospectus relating to the Securities is
required to be delivered under the Securities Act, any event occurs or condition
exists as a result of which the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or the Registration
Statement, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein not misleading, or if for any other reason it is necessary at
any time to amend or supplement any Registration Statement or the Prospectus to
comply with the Securities Act or the Exchange Act, the Company will promptly
notify the Placement Agent, and upon the Placement Agent’s request, the Company
will promptly prepare and file with the Commission, at the Company’s expense, an
amendment to the Registration Statement or an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such compliance
and will deliver to the Placement Agent, without charge, such number of copies
thereof as the Placement Agent may reasonably request. The Company consents to
the use of the Prospectus or any amendment or supplement thereto by the
Placement Agent.

 

23

 

 

(d)            If the General Disclosure Package is being used to solicit offers
to buy the Securities at a time when the Prospectus is not yet available to
prospective purchasers and any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Placement Agent, it
becomes necessary to amend or supplement the General Disclosure Package in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or to make the statements therein not conflict
with the information contained or incorporated by reference in the Registration
Statement then on file and not superseded or modified, or if it is necessary at
any time to amend or supplement the General Disclosure Package to comply with
any law, the Company promptly will either (i) prepare, file with the Commission
(if required) and furnish to the Placement Agent and any dealers an appropriate
amendment or supplement to the General Disclosure Package or (ii) prepare and
file with the Commission an appropriate filing under the Exchange Act which
shall be incorporated by reference in the General Disclosure Package so that the
General Disclosure Package as so amended or supplemented will not, in the light
of the circumstances under which they were made, be misleading or conflict with
the Registration Statement then on file, or so that the General Disclosure
Package will comply with law.

 

(e)             If at any time following issuance of an Issuer Free Writing
Prospectus in connection with the Offering there occurred or occurs an event or
development as a result of which such Issuer Free Writing Prospectus conflicted
or will conflict with the information contained in the Registration Statement,
Pricing Prospectus or Prospectus, including any document incorporated by
reference therein and any prospectus supplement deemed to be a part thereof and
not superseded or modified or included or would include an untrue statement of a
material fact or omitted or would omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, the
Company has promptly notified or will promptly notify the Placement Agent so
that any use of the Issuer Free Writing Prospectus may cease until it is amended
or supplemented and has promptly amended or will promptly amend or supplement,
at its own expense, such Issuer Free Writing Prospectus to eliminate or correct
such conflict, untrue statement or omission. The foregoing sentence does not
apply to statements in or omissions from any Issuer Free Writing Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Placement Agent specifically for inclusion therein, which
information the parties hereto agree is limited to the Placement Agent’s
Information (as defined in Section 17).

 

(f)             To the extent not available on the Commission’s EDGAR system, to
furnish promptly to the Placement Agent and to counsel for the Placement Agent a
signed copy of the Registration Statement as originally filed with the
Commission, and of each amendment thereto filed with the Commission, including
all consents and exhibits filed therewith.

 

24

 

 

(g)            To the extent not available on the Commission’s EDGAR system, to
deliver promptly to the Placement Agent in New York City such number of the
following documents as the Placement Agent shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission (in each case excluding exhibits), (ii) each Preliminary Prospectus
(if any), (iii) any Issuer Free Writing Prospectus, (iv) the Prospectus (the
delivery of the documents referred to in clauses (i), (ii) and (iii) of this
paragraph (g) to be made not later than 10:00 A.M., New York time, on the
business day following the execution and delivery of this Agreement), (v)
conformed copies of any amendment to the Registration Statement (excluding
exhibits), (vi) any amendment or supplement to the General Disclosure Package or
the Prospectus (the delivery of the documents referred to in clauses (v) and
(vi) of this paragraph (g) to be made not later than 10:00 A.M., New York City
time, on the business day following the date of such amendment or supplement)
and (vii) any document incorporated by reference in the General Disclosure
Package or the Prospectus (excluding exhibits thereto) (the delivery of the
documents referred to in clause (vi) of this paragraph (g) to be made not later
than 10:00 A.M., New York City time, on the business day following the date of
such document).

 

(h)            To make generally available to its shareholders as soon as
practicable, but in any event not later than sixteen (16) months after the
effective date of each Registration Statement (as defined in Rule 158(c) of the
Rules and Regulations), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at the option of the
Company, Rule 158).

 

(i)              To take promptly from time to time such actions as the
Placement Agent may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions (domestic
or foreign) as the Placement Agent may designate and to continue such
qualifications in effect, and to comply with such laws, for so long as required
to permit the offer and sale of Securities in such jurisdictions; provided that
the Company and its subsidiaries shall not be obligated to qualify as foreign
corporations in any jurisdiction in which they are not so qualified or to file a
general consent to service of process in any jurisdiction.

 

(j)              To the extent not available on the Commission’s EDGAR system,
upon request, during the period of five (5) years from the date hereof, to
deliver to the Placement Agent, as soon as they are available (i) copies of all
reports or other communications furnished to shareholders, and (ii) copies of
any reports and financial statements furnished or filed with the Commission or
any national securities exchange or automatic quotation system on which the
Common Stock is listed or quoted.

 

(k)            That the Company will not, from the date of this Agreement and
continuing through such date that is forty-five (45) days from the date of the
Second Closing Date (the “Lock-Up Period”) without the prior written consent of
LCM, directly or indirectly offer, sell, assign, transfer, pledge, contract to
sell, or otherwise dispose of, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, other than the
Company’s sale of the Securities hereunder and the issuance of restricted Common
Stock or options to acquire Common Stock pursuant to the Company’s employee
benefit plans, qualified stock option plans or other employee compensation plans
as such plans are in existence on the date hereof and described in the
Prospectus and the issuance of Common Stock pursuant to the valid exercises of
options, warrants or rights outstanding on the date hereof. The Company will
cause each executive officer and director, and each shareholder listed in
SCHEDULE B to furnish to the Placement Agent, prior to the date of this
Agreement, a letter, substantially in the form of EXHIBIT D hereto. The Company
also agrees that during such period, other than for the sale of the Securities
hereunder, the Company will not file any registration statement, preliminary
prospectus or prospectus, or any amendment or supplement thereto, under the
Securities Act for any such transaction or which registers, or offers for sale,
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, except for a registration statement on Form S-8 relating to
employee benefit plans. The Company hereby agrees that (i) if it issues an
earnings release or material news, or if a material event relating to the
Company occurs, during the last seventeen (17) days of the Lock-Up Period, or
(ii) if prior to the expiration of the Lock-Up Period, the Company announces
that it will release earnings results during the sixteen (16)-day period
beginning on the last day of the Lock-Up Period, the restrictions imposed by
this paragraph (k) or the letter shall continue to apply until the expiration of
the eighteen (18)-day period beginning on the issuance of the earnings release
or the occurrence of the material news or material event. The Company will
provide the Placement Agent and each stockholder subject to the Lock-Up Period
with prior notice (in accordance with Section 15 hereof) of any such
announcement that gives rise to an extension of the Lock-Up Period.

 

25

 

 

(l)              To supply the Placement Agent with copies of all correspondence
to and from, and all documents issued to and by, the Commission in connection
with the registration of the Securities under the Securities Act or any of the
Registration Statement, any Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto or document incorporated by reference therein.

 

(m)          Prior to the Initial Closing Date and the Second Closing Date, to
furnish to the Placement Agent, promptly after they have been prepared, copies
of any unaudited interim consolidated financial statements of the Company for
any periods subsequent to the periods covered by the financial statements
appearing in the Registration Statement and the Prospectus.

 

(n)            The Company has reserved 30,000,000 shares of Common Stock
related to this Offering, which it will reserve and keep available at all times,
free of pre-emptive or other similar rights for the purposes of enabling the
Company to issue Warrant Shares, Conversion Shares and any Interest/Amortization
Shares arising out of any of the Securities up to such number of shares of
Common Stock. For the purposes of enabling the Company to satisfy its obligation
to issue the Series B Notes, as well as any Warrant Shares, Conversion Shares
and Interest/Amortization Shares above and beyond the foregoing 30,000,000
shares of Common Stock, the Company covenants to obtain stockholder approval of
the transactions contemplated hereunder and to approve the amendment to the
company’s certificat eof incorporation to increase the authorized capital stock
pursuant to Section 5(w) of this Agreement. Following such stockholder approval,
if any, the Company further covenants to reserve and keep available at all
times, free of preemptive or other similar rights, a sufficient number of shares
of Common Stock for the purposes of enabling the Company to issue Warrant
Shares, Conversion Shares and any Interest/Amortization Shares arising out of
any of the Securities.

 

 

26

 

 

(o)            Prior to the Initial Closing Date and the Second Closing Date,
not to issue any press release or other communication directly or indirectly or
hold any press conference with respect to the Company, its condition, financial
or otherwise, or earnings, business affairs or business prospects (except for
routine oral marketing communications in the ordinary course of business and
consistent with the past practices of the Company and of which the Placement
Agent is notified), without the prior written consent of the Placement Agent,
unless in the judgment of the Company and its counsel, and after notification to
the Placement Agent, such press release or communication is required by law or
applicable stock exchange rules.

 

(p)            Until the Placement Agent shall have notified the Company of the
completion of the Offering, that the Company will not, and will cause its
affiliated purchasers (as defined in Regulation M under the Exchange Act) not
to, either alone or with one or more other persons, bid for or purchase, for any
account in which it or any of its affiliated purchasers has a beneficial
interest, any Securities, or attempt to induce any person to purchase any
Securities; and not to, and to cause its affiliated purchasers not to, make bids
or purchase for the purpose of creating actual, or apparent, active trading in
or of raising the price of the Securities.

 

(q)            Not to take any action prior to the Initial Closing Date and the
Second Closing Date which would require the Prospectus to be amended or
supplemented, without the prior written consent of the Placement Agent.

 

(r)             To at all times comply with all applicable provisions of the
Sarbanes-Oxley Act in effect from time to time.

 

(s)             To maintain, at its expense, a registrar and transfer agent for
its Common Stock.

 

(t)              To apply the net proceeds from the sale of the Securities as
set forth in the Registration Statement, the General Disclosure Package and the
Prospectus under the heading “Use of Proceeds.” The Company shall manage its
affairs and investments in such a manner as not to be or become an “investment
company” within the meaning of the Investment Company Act and the rules and
regulations thereunder.

 

(u)            To use its reasonable best efforts to list, subject to notice of
issuance, and to maintain the listing of the Common Stock on the Nasdaq CM.

 

(v)            To use its reasonable best efforts to assist the Placement Agent
with any filings with FINRA and obtaining clearance from FINRA as to the amount
of compensation allowable or payable to the Placement Agent.

 

(w)           Within ninety (90) days immediately following the Initial Closing
date, to obtain stockholder approval of the transactions contemplated hereunder
and to approve of the issuance of the Series B Notes, and the securities
convertible into or exercisable for Common Stock of the Company in excess of
19.99% of shares of Common Stock outstanding on December 19, 2012 in accordance
with Nasdaq’s Listing Rule 5635(d).

 

(x)            To use its reasonable best efforts to do and perform all things
required to be done or performed under this Agreement by the Company prior to
each of the Initial Closing Date and the Second Closing Date and to satisfy all
conditions precedent to the delivery of the Securities.

 

27

 

 

6.               Payment Of Expenses. The Company agrees to pay, or reimburse if
paid by the Placement Agent, upon consummation of the transactions contemplated
hereby: (a) the costs incident to the authorization, issuance, sale, preparation
and delivery of the Securities to the Purchasers and any taxes payable in that
connection; (b) the costs incident to the registration of the Securities under
the Securities Act; (c) the costs incident to the preparation, printing and
distribution of the Registration Statement, the Base Prospectus, any Issuer Free
Writing Prospectus, the General Disclosure Package, the Prospectus, any
amendments, supplements and exhibits thereto or any document incorporated by
reference therein and the costs of printing, reproducing and distributing this
Agreement, the Securities Purchase Agreements, the Notes, the Indenture and any
supplement related thereto, the Warrants and any closing document by mail, telex
or other means of communications; (d) the fees and expenses (including related
fees and expenses of counsel for the Placement Agent) incurred in connection
with securing any required review by FINRA of the terms of the sale of the
Securities and any filings made with FINRA; (e) any applicable listing,
quotation or other fees; (f) the fees and expenses (including related fees and
expenses of counsel to the Placement Agent) of qualifying the Securities under
the securities laws of the several jurisdictions as provided in Section 5(I)(i)
and of preparing, printing and distributing wrappers, Blue Sky Memoranda and
Legal Investment Surveys; (g) the cost of preparing and printing stock
certificates; (h) all fees and expenses of the registrar and transfer agent of
the Securities; (i) the fees, disbursements and expenses of counsel to the
Placement Agent, not to exceed (A) $125,000, which shall be payable on the
Initial Closing Date, and (B) $25,000, which shall be payable on the Second
Closing Date; provided, however, that the total payable amount by the Company
under this Section 6(i) shall not exceed $125,000 in the aggregate; (j) the
costs and expenses of the Company relating to investor presentations on any
“road show” undertaken in connection with the marketing of the Offering,
including, without limitation, expenses associated with the preparation or
dissemination of any electronic road show, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the officers of
the Company and such consultants, including the cost of any aircraft chartered
in connection with the road show, and (k) all other costs and expenses incident
to the Offering or the performance of the obligations of the Company under this
Agreement (including, without limitation, the fees and expenses of the Company’s
counsel and the Company’s independent accountants.

 

7.               Conditions To The Obligations Of The Placement Agent, And The
Sale Of The Securities. The obligations of the Placement Agent hereunder are
subject to the accuracy, when made and as of the Applicable Time and on the
Initial Closing Date and the Second Closing Date, of the representations and
warranties of the Company contained herein, to the accuracy of the statements of
the Company made in any certificates pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:

 

28

 

 

 

(I)              The Registration Statement is effective under the Securities
Act, and no stop order suspending the effectiveness of any Registration
Statement or any part thereof, preventing or suspending the use of any Base
Prospectus, any Preliminary Prospectus, the Prospectus or any Permitted Free
Writing Prospectus or any part thereof shall have been issued and no proceedings
for that purpose or pursuant to Section 8A under the Securities Act shall have
been initiated or threatened by the Commission, and all requests for additional
information on the part of the Commission (to be included or incorporated by
reference in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Placement Agent;
and each Issuer Free Writing Prospectus (except for a road show), if any, and
the Prospectus shall have been filed with the Commission within the applicable
time period prescribed for such filing by, and in compliance with, the Rules and
Regulations and in accordance with Section 5(I)(a); and, if applicable, FINRA
shall have raised no objection to the fairness and reasonableness of the terms
of this Agreement or the transactions contemplated hereby.

 

(II)            The Placement Agent shall not have discovered and disclosed to
the Company on or prior to the Initial Closing Date and the Second Closing Date
that any Registration Statement or any amendment or supplement thereto contains
an untrue statement of a fact which, in the opinion of counsel for the Placement
Agent, is material or omits to state any fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein not misleading, or that the General Disclosure
Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment
or supplement thereto contains an untrue statement of fact which, in the opinion
of such counsel, is material or omits to state any fact which, in the opinion of
such counsel, is material and is necessary in order to make the statements, in
the light of the circumstances in which they were made, not misleading.

 

(III)          All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of this Agreement, the Securities
Purchase Agreements, the Securities, the Registration Statement, the Indenture,
the General Disclosure Package, each Issuer Free Writing Prospectus, if any, any
Preliminary Prospectus and the Prospectus and all other legal matters relating
to this Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Placement Agent, and
the Company shall have furnished to such counsel all documents and information
that they may reasonably request to enable them to pass upon such matters.

 

(IV)         Troutman Sanders LLP shall have furnished to the Placement Agent
such counsel’s written opinion and negative assurance statement, as counsel to
the Company, addressed to the Placement Agent dated the Initial Closing Date,
and the Second Closing Date, covering the opinions substantially in the form set
forth in Exhibit E attached hereto.

 

(V)           The Placement Agent shall have received from Proskauer Rose LLP,
counsel for the Placement Agent, such written opinion and negative assurance
statement, addressed to the Placement Agent, dated the Initial Closing Date,
with respect to such matters as the Placement Agent may reasonably require, and
the Company shall have furnished to such counsel such documents as it requests
to enable it to pass upon such matters.

 

29

 

 

 

(VI)         At the time of the execution of this Agreement, the Placement Agent
shall have received from Hein & Associates LLP a letter, addressed to the
Placement Agent, executed and dated such date, in form and substance
satisfactory to the Placement Agent (i) confirming that they are an independent
registered accounting firm with respect to the Company and its subsidiaries
within the meaning of the Securities Act and the Rules and Regulations and PCAOB
and (ii) stating the conclusions and findings of such firm, of the type
ordinarily included in accountants’ “comfort letters” to underwriters, with
respect to the financial statements and certain financial information contained
or incorporated by reference in the Registration Statement, the General
Disclosure Package and the Prospectus.

 

(VII)       On the effective date of any post-effective amendment to any
Registration Statement and on the Initial Closing Date, and the Second Closing
Date, the Placement Agent shall have received a letter (the “Bring-Down Letter”)
from Hein & Associates LLP addressed to the Placement Agent and dated the
Initial Closing Date, and such date of the Second Closing Date, confirming, as
of the date of the Bring-Down Letter (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the General Disclosure Package and the
Prospectus, as the case may be, as of a date not more than three (3) business
days prior to the date of the Bring-Down Letter), the conclusions and findings
of such firm, of the type ordinarily included in accountants’ “comfort letters”
to underwriters, with respect to the financial information and other matters
covered by its letter delivered to the Placement Agent concurrently with the
execution of this Agreement pursuant to paragraph (VIII) of this Section 7.

 

(VIII)     The Company shall have furnished to the Placement Agent a
certificate, dated the Initial Closing Date, and the Second Closing Date, of its
Chairman of the Board, its President or a Vice President and its chief financial
officer stating that (i) such officers have carefully examined the Registration
Statement, the General Disclosure Package, any Permitted Free Writing Prospectus
and the Prospectus and, in their opinion, the Registration Statement and each
amendment thereto, at the Applicable Time, as of the date of this Agreement and
as of the Initial Closing Date, and the Second Closing Date, did not include any
untrue statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the General Disclosure Package, as of the Applicable Time and as
of the Initial Closing Date, and the Second Closing Date, any Permitted Free
Writing Prospectus as of its date and as of the Initial Closing Date, and the
Second Closing Date, the Prospectus and each amendment or supplement thereto, as
of the respective date thereof and as of the Initial Closing Date, and the
Second Closing Date, did not include any untrue statement of a material fact and
did not omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, (ii) since the effective date of the Registration Statement, no
event has occurred which should have been set forth in a supplement or amendment
to the Registration Statement, the General Disclosure Package or the Prospectus,
(iii) to their knowledge, as of the Initial Closing Date, and the Second Closing
Date, the representations and warranties of the Company in this Agreement are
true and correct and the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied hereunder at or prior to
the Initial Closing Date, and the Second Closing Date, and (iv) there has not
been, subsequent to the date of the most recent audited financial statements
included or incorporated by reference in the General Disclosure Package, any
material adverse change in the financial position or results of operations of
the Company and its subsidiaries, or any change or development that, singly or
in the aggregate, would involve a material adverse change or a prospective
material adverse change, in or affecting the condition (financial or otherwise),
results of operations, business, assets or prospects of the Company and its
subsidiaries taken as a whole, except as set forth in the Prospectus.

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(IX)         Since the date of the latest audited financial statements included
in the General Disclosure Package or incorporated by reference in the General
Disclosure Package as of the date hereof, (i) neither the Company nor any of its
subsidiaries shall have sustained any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth in the General Disclosure Package, and (ii)
there shall not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries, or any change, or any development
involving a prospective change, in or affecting the business, general affairs,
management, financial position, stockholders’ equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth in the General
Disclosure Package, the effect of which, in any such case described in clause
(i) or (ii) of this paragraph (X), is, in the judgment of the Placement Agent,
so material and adverse as to make it impracticable or inadvisable to proceed
with the sale or delivery of the Securities on the terms and in the manner
contemplated in the General Disclosure Package.

 

(X)           No action shall have been taken and no law, statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency or body which would prevent the issuance or sale of any of
the Securities or materially and adversely affect or potentially materially and
adversely affect the business or operations of the Company; and no injunction,
restraining order or order of any other nature by any federal or state court of
competent jurisdiction shall have been issued which would prevent the issuance
or sale of the Securities or materially and adversely affect or potentially
materially and adversely affect the business or operations of the Company.

 

(XI)         Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the Company’s corporate credit rating or the
rating accorded the Company’s debt securities by any “nationally recognized
statistical rating organization,” as that term is defined by the Commission for
purposes of Rule 436(g)(2) of the Rules and Regulations and (ii) no such
organization shall have publicly announced that it has under surveillance or
review (other than an announcement with positive implications of a possible
upgrading), the Company’s corporate credit rating or the rating of any of the
Company’s debt securities.

 

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(XII)       Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, Nasdaq CM or the NYSE MKT LLC or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or
materially limited, or minimum or maximum prices or maximum range for prices
shall have been established on any such exchange or such market by the
Commission, by such exchange or market or by any other regulatory body or
governmental authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities or a material disruption has
occurred in commercial banking or securities settlement or clearance services in
the United States, (iii) the United States shall have become engaged in
hostilities, or the subject of an act of terrorism, or there shall have been an
outbreak of or escalation in hostilities involving the United States, or there
shall have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse change in
general economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States shall be
such) as to make it, in the judgment of the Placement Agent, impracticable or
inadvisable to proceed with the sale or delivery of the Securities on the terms
and in the manner contemplated in the General Disclosure Package and the
Prospectus.

 

(XIII)     The Company shall have filed a Notification Form: Listing of
Additional Shares with the Nasdaq CM and shall have received no objection
thereto.

 

(XIV)    The Placement Agent shall have received the written agreements,
substantially in the form of EXHIBIT C hereto, of the executive officers and
directors of the Company listed in SCHEDULE B to this Agreement.

 

(XV)      The Company shall have entered into Securities Purchase Agreements
with each of the Purchasers; such agreements shall be in full force and effect
and the Company shall have satisfied all conditions to closing related thereto.

 

(XVI)    The Company shall have entered into an Indenture and a Supplemental
Indenture related thereto and such agreement shall be in full force and effect.

 

(XVII)  The Company shall have entered into the Notes with each of the
Purchasers and such agreements shall be in full force and effect.

 

(XVIII) The Company shall have entered into the Warrants with each of the
Purchasers and such agreements shall be in full force and effect.

 

(XIX)    FINRA shall not have raised any objection as to the compensation
payable to the Placement Agent in connection with the Offering.

 

(XX)      The Company shall have obtained a cusip number for the Notes, and
shall issue the Notes at closing in certificated form.

 

(XXI)    Within ninety (90) days immediately following the Initial Closing Date,
and in any event, prior to the Second Closing Date, the Company shall obtain
stockholder approval of (i) the amendment and restatement of the Company
Certificate of Incorporation increasing the number of authorized shares of
Common Stock thereunder through a reverse split of its common stock or
otherwise, and (ii) the issuance of all the Securities in accordance with
applicable law and Nasdaq’s Listing Rule 5635(d).

 

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(XXII) The Company shall have prepared and filed with the Commission a Current
Report on Form 8-K including as an exhibit thereto this Agreement, the
Securities Purchase Agreement, the Indenture, the Notes and the Warrants.

 

(XXIII) The holders of warrants issued under the Securities Purchase Agreement
dated December 8, 2011 by and among the Company and the investors listed on the
Schedule of Investors attached thereto (the “December 2011 SPA”) and shall have
provided a written waiver (which may be in electronic form, including via email)
in a form reasonably satisfactory to the Placement Agent acknowledging the
waiver of their notice rights under Section 4.9 of the December 2011 SPA.

 

All opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to counsel for
the Placement Agent.

 

8.               Indemnification and Contribution.

 

(I)              The Company shall indemnify and hold harmless the Placement
Agent, its affiliates and each of its and their respective directors, officers,
members, employees, representatives and agents (including, without limitation
Lazard Frères & Co. LLC, (which will provide services to the Placement Agent)
and its affiliates, and each of its and their respective directors, officers,
members, employees, representatives and agents and each person, if any, who
controls Lazard Frères & Co. LLC within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and each person, if any, who
controls the Placement Agent within the meaning of Section 15 of the Securities
Act of or Section 20 of the Exchange Act (collectively the “Placement Agent
Indemnified Parties,” and each a “Placement Agent Indemnified Party”) against
any loss, claim, damage, expense or liability whatsoever (or any action,
investigation or proceeding in respect thereof), joint or several, to which such
Placement Agent Indemnified Party may become subject, under the Securities Act
or otherwise, insofar as such loss, claim, damage, expense, liability, action,
investigation or proceeding arises out of or is based (A) any untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed
or required to be filed pursuant to Rule 433(d) of the Rules and Regulations,
any Registration Statement or the Prospectus, or in any amendment or supplement
thereto or document incorporated by reference therein, or (B) the omission or
alleged omission to state in any Preliminary Prospectus, any Issuer Free Writing
Prospectus, any “issuer information” filed or required to be filed pursuant to
Rule 433(d) of the Rules and Regulations, any Registration Statement or the
Prospectus, or in any amendment or supplement thereto or document incorporated
by reference therein, a material fact required to be stated therein or necessary
to make the statements therein not misleading, or (C) any breach of the
representations and warranties of the Company contained herein or the failure of
the Company to perform its obligations hereunder or pursuant to any law, any act
or failure to act, or any alleged act or failure to act, by the Placement Agent
in connection with, or relating in any manner to the Securities or the Offering,
and which is included as part of or referred to in any loss, claim, damage,
expense, liability, action, investigation or proceeding arising out of or based
upon matters covered by subclause (A), (B) or (C) above of this Section 8(I)
(provided that the Company shall not be liable in the case of any matter covered
by this subclause (C) to the extent that it is determined in a final judgment by
a court of competent jurisdiction that such loss, claim, damage, expense or
liability resulted primarily from any such act or failure to act undertaken or
omitted to be taken by the Placement Agent through its gross negligence or
willful misconduct), and shall reimburse the Placement Agent Indemnified Party
promptly upon demand for any legal fees or other expenses reasonably incurred by
that Placement Agent Indemnified Party in connection with investigating, or
preparing to defend, or defending against, settling, compromising, or appearing
as a third party witness in respect of, or otherwise incurred in connection
with, any such loss, claim, damage, expense, liability, action, investigation or
proceeding, as such fees and expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, expense or liability arises out of or is based upon an untrue
statement or alleged untrue statement in, or omission or alleged omission from
any Preliminary Prospectus, the Registration Statement or the Prospectus, or any
such amendment or supplement thereto, or any Issuer Free Writing Prospectus made
in reliance upon and in conformity with written information furnished to the
Company by the Placement Agent specifically for use therein, which information
the parties hereto agree is limited to the Placement Agent’s Information (as
defined in Section 17). This indemnity agreement is not exclusive and will be in
addition to any liability, which the Company might otherwise have and shall not
limit any rights or remedies which may otherwise be available at law or in
equity to each Placement Agent Indemnified Party.

 

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(II)            The Placement Agent shall indemnify and hold harmless the
Company and its directors, its officers who signed the Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act (collectively the
“Company Indemnified Parties” and each a “Company Indemnified Party”) against
any loss, claim, damage, expense or liability whatsoever (or any action,
investigation or proceeding in respect thereof), joint or several, to which such
Company Indemnified Party may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, expense, liability, action,
investigation or proceeding arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer
information” filed or required to be filed pursuant to Rule 433(d) of the Rules
and Regulations, any Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any
“issuer information” filed or required to be filed pursuant to Rule 433(d) of
the Rules and Regulations, any Registration Statement or the Prospectus, or in
any amendment or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by the Placement Agent specifically
for use therein, which information the parties hereto agree is limited to the
Placement Agent’s Information as defined in Section 17, and shall reimburse the
Company Indemnified Parties for any legal or other expenses reasonably incurred
by such party in connection with investigating or preparing to defend or
defending against or appearing as third party witness in connection with any
such loss, claim, damage, liability, action, investigation or proceeding, as
such fees and expenses are incurred. Notwithstanding the provisions of this
Section 8(II), in no event shall any indemnity by the Placement Agent under this
Section 8(II) exceed the Placement Fee received by the Placement Agent in
accordance with Section 2(V).

 

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(III)          Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 8, notify such indemnifying party in writing of the commencement of that
action; provided, however, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have under this Section 8
except to the extent it has been materially prejudiced by such failure; and,
provided, further, that the failure to notify an indemnifying party shall not
relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 8. If any such action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense of such action with counsel reasonably satisfactory to the
indemnified party (which counsel shall not, except with the written consent of
the indemnified party, be counsel to the indemnifying party). After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such action, except as provided herein, the indemnifying party shall
not be liable to the indemnified party under Section 8 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense of such action other than reasonable costs of investigation; provided,
however, that any indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense of such action but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be at the expense of such indemnified party unless (i) the
engagement thereof has been specifically authorized in writing by the Company in
the case of a claim for indemnification under Section 8(I) or Section 2(VI) or
LCM in the case of a claim for indemnification under Section 8(II), (ii) such
indemnified party shall have been advised by its counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party, or (iii) the indemnifying party has
failed to assume the defense of such action and employ counsel reasonably
satisfactory to the indemnified party within a reasonable period of time after
notice of the commencement of the action or the indemnifying party does not
diligently defend the action after assumption of the defense, in which case, if
such indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of (or, in the
case of a failure to diligently defend the action after assumption of the
defense, to continue to defend) such action on behalf of such indemnified party
and the indemnifying party shall be responsible for legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
of such action; provided, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all such indemnified
parties (in addition to any local counsel), which firm shall be designated in
writing by LCM if the indemnified parties under this Section 8 consist of any
Placement Agent Indemnified Party or by the Company if the indemnified parties
under this Section 8 consist of any Company Indemnified Parties. Subject to this
Section 8(III), the amount payable by an indemnifying party under Section 8
shall include, but not be limited to, (x) reasonable legal fees and expenses of
counsel to the indemnified party and any other expenses in investigating, or
preparing to defend or defending against, or appearing as a third party witness
in respect of, or otherwise incurred in connection with, any action,
investigation, proceeding or claim, and (y) all amounts paid in settlement of
any of the foregoing. No indemnifying party shall, without the prior written
consent of the indemnified parties, settle or compromise or consent to the entry
of judgment with respect to any pending or threatened action or any claim
whatsoever, in respect of which indemnification or contribution could be sought
under this Section 8 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party in form and
substance reasonably satisfactory to such indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party. Subject to the provisions of the following sentence, no
indemnifying party shall be liable for settlement of any pending or threatened
action or any claim whatsoever that is effected without its written consent
(which consent shall not be unreasonably withheld or delayed), but if settled
with its written consent, if its consent has been unreasonably withheld or
delayed or if there be a judgment for the plaintiff in any such matter, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment.
In addition, if at any time an indemnified party shall have requested that an
indemnifying party reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated herein effected without its written
consent if (i) such settlement is entered into more than forty-five (45) days
after receipt by such indemnifying party of the request for reimbursement, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least thirty (30) days prior to such settlement being entered into
and (iii) such indemnifying party shall not have reimbursed such indemnified
party in accordance with such request prior to the date of such settlement.

 

35

 

 

(IV)         If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(I) or Section 8(II), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid, payable or
otherwise incurred by such indemnified party as a result of such loss, claim,
damage, expense or liability (or any action, investigation or proceeding in
respect thereof), as incurred, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company on the one hand and the
Placement Agent on the other hand from the Offering, or (ii) if the allocation
provided by clause (i) of this Section 8(IV) is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) of this Section 8(IV) but also the relative fault of
the Company on the one hand and the Placement Agent on the other with respect to
the statements, omissions, acts or failures to act which resulted in such loss,
claim, damage, expense or liability (or any action, investigation or proceeding
in respect thereof) as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Placement
Agent on the other with respect to such offering shall be deemed to be in the
same proportion as the total net proceeds from the Offering purchased under this
Agreement and the Securities Purchase Agreements (before deducting expenses)
received by the Company bear to the total fees received by the Placement Agent
in connection with the Offering, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company on the one hand
and the Placement Agent on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Placement Agent on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement,
omission, act or failure to act; provided that the parties hereto agree that the
written information furnished to the Company by the Placement Agent for use in
any Registration Statement or the Prospectus, or in any amendment or supplement
thereto, consists solely of the Placement Agent’s Information as defined in
Section 17. The Company and the Placement Agent agree that it would not be just
and equitable if contributions pursuant to this Section 8(IV) were to be
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage, expense, liability, action, investigation or proceeding referred to
above in this Section 8(IV) shall be deemed to include, for purposes of this
Section 8(IV), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, preparing to defend or
defending against or appearing as a third party witness in respect of, or
otherwise incurred in connection with, any such loss, claim, damage, expense,
liability, action, investigation or proceeding. Notwithstanding the provisions
of this Section 8(IV), the Placement Agent shall not be required to contribute
any amount in excess of the Placement Fee received by the Placement Agent in
accordance with Section 2(V) less the amount of any damages which the Placement
Agent has otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement, omission or alleged omission, act or alleged act or
failure to act or alleged failure to act. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.

 

9.               Termination. The obligations of the Placement Agent hereunder
may be terminated by the Placement Agent, in its absolute discretion by notice
given to the Company prior to delivery of and payment for the Securities if,
prior to that time, any of the events described in Sections 7(IX), 7(X), 7(XI)
or 7(XII) have occurred, or if the Purchasers shall decline to purchase the
Securities for any reason.

 

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10.            Reimbursement Of Placement Agent’s Expenses. Notwithstanding
anything to the contrary in this Agreement, if (a) this Agreement shall have
been terminated pursuant to Section 9, (b) the Company shall fail to tender the
Securities for delivery to the Purchasers for any reason not permitted under
this Agreement or the Securities Purchase Agreements or (c) the sale of the
Securities is not consummated because any condition to the obligations of the
Purchasers or the Placement Agent set forth herein or in the Securities Purchase
Agreements is not satisfied or because of the refusal, inability or failure on
the part of the Company to perform any agreement herein or in the Securities
Purchase Agreements or to satisfy any condition or to comply with the provisions
hereof or thereof, then the Company shall reimburse the Placement Agent’s
out-of-pocket expenses in accordance with Section 6 and, in addition, the
Company shall reimburse the Placement Agent for the reasonable fees and expenses
of the Placement Agent’s counsel and for all other accountable out-of-pocket
expenses as shall have been reasonably incurred by them in connection with this
Agreement and the proposed Offering, and promptly upon demand the Company shall
pay the full amount thereof to the Placement Agent.

 

11.            Absence Of Fiduciary Relationship. The Company acknowledges and
agrees that:

 

(a)             the Placement Agent’s responsibility to the Company is solely
contractual in nature, the Placement Agent has been retained solely to act as
Placement Agent in connection with the Offering and no fiduciary, advisory or
agency relationship between the Company and the Placement Agent has been created
in respect of any of the transactions contemplated by this Agreement,
irrespective of whether the Placement Agent or Lazard Frères & Co. LLC has
advised or is advising the Company on other matters;

 

(b)            the price of the Securities set forth in this Agreement was
established by the Company following discussions and arms-length negotiations
with the Purchasers, and the Company is capable of evaluating and understanding,
and understands and accepts, the terms, risks and conditions of the transactions
contemplated by this Agreement;

 

(c)             it has been advised that the Placement Agent and Lazard Frères &
Co. LLC and their affiliates are engaged in a broad range of transactions which
may involve interests that differ from those of the Company and that the
Placement Agent has no obligation to disclose such interests and transactions to
the Company by virtue of any fiduciary, advisory or agency relationship; and

 

(d)            it waives, to the fullest extent permitted by law, any claims it
may have against the Placement Agent for breach of fiduciary duty or alleged
breach of fiduciary duty and agrees that the Placement Agent shall have no
liability (whether direct or indirect) to the Company in respect of such a
fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf
of or in right of the Company, including stockholders, employees or creditors of
the Company.

 

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12.            Successors; Persons Entitled To Benefit Of Agreement. This
Agreement shall inure to the benefit of and be binding upon the Placement Agent,
the Company, and their respective successors and assigns. This Agreement shall
also inure to the benefit of Lazard Frères & Co. LLC and each of its respective
successors and assigns, which shall be third party beneficiaries hereof. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, other than the persons mentioned in the preceding sentences,
any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person; except that the
representations, warranties, covenants, agreements and indemnities of the
Company contained in this Agreement shall also be for the benefit of the
Placement Agent Indemnified Parties, and the indemnities of the Placement Agent
shall be for the benefit of the Company Indemnified Parties. It is understood
that Placement Agent’s responsibility to the Company is solely contractual in
nature and the Placement Agent does not owe the Company, or any other party, any
fiduciary duty as a result of this Agreement. No Purchaser shall be deemed to be
a successor or assign by reason merely of such purchase.

 

13.            Survival of Indemnities, Representations, Warranties, Etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the Placement Agent, as set forth in this
Agreement or made by them respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation made by or on behalf
of the Placement Agent, the Company, the Purchasers or any person controlling
any of them and shall survive delivery of and payment for the Securities.
Notwithstanding any termination of this Agreement, including without limitation
any termination pursuant to Section 9, the indemnity, contribution and
reimbursement agreements contained in Sections 8 and 10 and the covenants,
representations, warranties set forth in this Agreement shall not terminate and
shall remain in full force and effect at all times.

 

14.            Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:

 

(a)             if to the Placement Agent, shall be delivered or sent by mail,
telex, facsimile transmission or email to Lazard Capital Markets LLC, 30
Rockefeller Plaza, New York, NY 10020, Attention: General Counsel, Fax:
212-830-3615; and

 

(b)            if to the Company, shall be delivered or sent by mail, telex,
facsimile transmission or email to Pacific Ethanol, Inc., 400 Capitol Mall,
Suite 2060, Sacramento, CA 95814, Attention: General Counsel, Facsimile: (916)
446-3937.

 

provided, however, that any notice to the Placement Agent pursuant to Section 8
shall be delivered or sent by mail, telex or facsimile transmission to the
Placement Agent at its address set forth in its acceptance telex to the
Placement Agent, which address will be supplied to any other party hereto by the
Placement Agent upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof, except that any
such statement, request, notice or agreement delivered or sent by email shall
take effect at the time of confirmation of receipt thereof by the recipient
thereof.

 

15.            Definition Of Certain Terms. For purposes of this Agreement, (a)
“business day” means any day on which the Nasdaq CM is open for trading, (b)
“subsidiary” has the meaning set forth in Rule 405 of the Rules and Regulations,
and (c) “to the Company’s knowledge” or “to the knowledge of the Company” or
words of similar import shall mean to the knowledge of any officer or director
of the Company after a reasonable investigation of such facts by such officer or
director.

 

 

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16.            Governing Law, Agent For Service And Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, including without limitation Section 5-1401 of the New York General
Obligations Law. No legal proceeding may be commenced, prosecuted or continued
in any court other than the courts of the State of New York located in the City
and County of New York or in the United States District Court for the Southern
District of New York, which courts shall have jurisdiction over the adjudication
of such matters, and the Company and the Placement Agent each hereby consent to
the jurisdiction of such courts and personal service with respect thereto. The
Company and the Placement Agent each hereby waive all right to trial by jury in
any legal proceeding (whether based upon contract, tort or otherwise) in any way
arising out of or relating to this Agreement. The Company agrees that a final
judgment in any such legal proceeding brought in any such court shall be
conclusive and binding upon the Company and the Placement Agent and may be
enforced in any other courts in the jurisdiction of which the Company is or may
be subject, by suit upon such judgment.

 

17.            Placement Agent’s Information. The parties hereto acknowledge and
agree that, for all purposes of this Agreement, the Placement Agent’s
Information consists solely of the following information in the Prospectus: the
statements concerning the Placement Agent contained in the first and sixth
paragraphs under the heading “Plan of Distribution.”

 

18.            Partial Unenforceability. The invalidity or unenforceability of
any section, paragraph, clause or provision of this Agreement shall not affect
the validity or enforceability of any other section, paragraph, clause or
provision hereof. If any section, paragraph, clause or provision of this
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.

 

19.            General. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. In this Agreement, the masculine, feminine and neuter
genders and the singular and the plural include one another. The section
headings in this Agreement are for the convenience of the parties only and will
not affect the construction or interpretation of this Agreement. This Agreement
may be amended or modified, and the observance of any term of this Agreement may
be waived, only by a writing signed by the Company and the Placement Agent.

 

20.            Research Analyst Independence. The Company acknowledges that the
Placement Agent’s research analysts and research departments are required to be
independent from its investment banking division and are subject to certain
regulations and internal policies, and that Placement Agent’s research analysts
may hold views and make statements or investment recommendations and/or publish
research reports with respect to the Company and/or the Offering that differ
from the views of their investment banking division. The Company acknowledges
that Placement Agent is a full service securities firm and as such from time to
time, subject to applicable securities laws, rules and regulations, may effect
transactions for its own account or the account of its customers and hold long
or short positions in debt or equity securities of the Company; provided,
however, that nothing in this Section 20 shall relieve the Placement Agent of
any responsibility or liability it may otherwise bear in connection with
activities in violation of applicable securities laws, rules or regulations.

 

21.            Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument and such signatures
may be delivered by facsimile.

 

 

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If the foregoing is in accordance with your understanding of the agreement
between the Company and the Placement Agent, kindly indicate your acceptance in
the space provided for that purpose below.

 

 

Very truly yours,

 

 

PACIFIC ETHANOL, INC.

 

 

By:  /s/ Bryon T. McGregor                       
          Name: Bryon T. McGregor
          Title: Chief Financial Officer

 

Accepted as of the date

first above written:

 

LAZARD CAPITAL MARKETS LLC

 

By:  /s/ Scott McLaughlin                               
          Name: Schott McLaughlin
          Title: Managing Director

 

 

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