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.


 






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(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.


 






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(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.


 






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(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.


 






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(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.


 






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(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.


 


 






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(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.


 






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(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.


 






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(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.


 






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(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.


 






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(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.


 






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(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).


 






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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.


 






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(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.


 






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(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.


 






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(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.


 


 






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(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.


 






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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:


 






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(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.


 






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(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.


 






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(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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