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EXHIBIT 10.1


                          SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of May 25, 2006,
by and among Pacific Ethanol, Inc., a Delaware corporation with headquarters
located at 5711 N. West Avenue, Fresno, CA 93711 (the "COMPANY"), and the
investors listed on the Schedule of Investors attached hereto as Exhibit A
(individually, an "INVESTOR" and collectively, the "INVESTORS").

                                   BACKGROUND

         A. The Company and each Investor are executing and delivering this
Agreement in reliance upon the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.

         B. Each Investor, severally and not jointly, wishes to purchase, and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate number of shares of the Common Stock, par value
$0.001 per share, of the Company (the "COMMON STOCK"), set forth opposite such
Investor's name in column two (2) on the Schedule of Investors in EXHIBIT A
(which aggregate amount for all Investors together shall be 5,496,583 shares of
Common Stock and shall collectively be referred to herein as the "COMMON
SHARES") and (ii) warrants, in substantially the form attached hereto as EXHIBIT
F (the "Warrants") to acquire up to that number of additional shares of Common
Stock set forth opposite such Investor's name in column three (3) on the
Schedule of Investors (the shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants, collectively, the "WARRANT SHARES").

         C. The Common Shares, the Warrants and the Warrant Shares issued
pursuant to this Agreement are collectively are referred to herein as the
"SECURITIES".

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:

                                    ARTICLE I
                                   DEFINITIONS

         1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:

         "AFFILIATE" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act.

         "AGENT" has the meaning set forth in SECTION 3.1(L).





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         "AGREEMENT" has the meaning set forth in the Preamble.

         "BEST EFFORTS" means the efforts that a prudent person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as practical; PROVIDED, HOWEVER, that an obligation
to use Best Efforts under this Agreement does not require the Company to dispose
of or make any change to its business, expend any material funds or incur any
other material burden.

         "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.

         "CLOSING" means the closing of the purchase and sale of the Securities
pursuant to SECTION 2.1.

         "CLOSING DATE" means the date and time of the Closing and shall be
10:00 a.m., New York City Time, on May 31, 2006 (or such other date and time as
is mutually agreed to by the Company and each Investor).

         "CLOSING PRICE" means, for any date, the closing price per share of the
Common Stock for such date (or the nearest preceding date) on the primary
Eligible Market or exchange or quotation system on which the Common Stock is
then listed or quoted.

         "COMPANY" has the meaning set forth in the Preamble.

         "COMPANY COUNSEL" means Rutan & Tucker, LLP, counsel to the Company.

          "COMMON SHARES" means an aggregate of 5,496,583 shares of Common
Stock, which are being issued and sold by the Company to the Investors at the
Closing.

         "COMMON STOCK" means the common stock of the Company, par value $0.001
per share.

         "COMMON STOCK EQUIVALENTS" means, collectively, Options and Convertible
Securities.

         "CONTINGENT OBLIGATION" has the meaning set forth in SECTION 3.1(AA).

         "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for Common Stock.

         "DISCLOSURE MATERIALS" has the meaning set forth in SECTION 3.1(G).

         "EFFECTIVE DATE" means the date that the Registration Statement is
first declared effective by the SEC.

         "EFFECTIVENESS PERIOD" has the meaning set forth in SECTION 6.1(B).

         "8-K FILING" has the meaning set forth in SECTION 4.6.


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         "ELIGIBLE MARKET" means any of the New York Stock Exchange, the
American Stock Exchange, The Nasdaq National Market or The Nasdaq Capital
Market.

         "ENVIRONMENTAL LAWS" has the meaning set forth in SECTION 3.1(DD).

         "EVENT" has the meaning set forth in SECTION 6.1(D).

         "EVENT PAYMENTS" has the meaning set forth in SECTION 6.1(D).

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "EXCLUDED EVENTS" has the meaning set forth in SECTION 6.1(D)(II).

         "EXCLUDED INVESTORS" means Cowen & Co., LLC and its Affiliates.

         "FILING DATE" means June 30, 2006.

         "GAAP" has the meaning set forth in SECTION 3.1(G).

         "HAZARDOUS MATERIALS" has the meaning set forth in SECTION 3.1(DD).

         "INDEBTEDNESS" has the meaning set forth in SECTION 3.1(AA).

         "INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.4(C).

         "INDEMNIFYING PARTY" has the meaning set forth in SECTION 6.4(C).

         "INSOLVENT" has the meaning set forth in SECTION 3.1(H).

         "INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in SECTION
3.1(T).

         "INVESTOR" has the meaning set forth in the Preamble.

          "LIEN" means any lien, charge, claim, security interest, encumbrance,
right of first refusal or other restriction.

         "LOSSES" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including, without limitation and reasonable
attorneys' fees.

         "MATERIAL ADVERSE EFFECT" means (i) a material adverse effect on the
results of operations, assets, business or financial condition of the Company
and the Subsidiaries, taken as a whole on a consolidated basis, or (ii)
materially and adversely impair the Company's ability to perform its obligations
under any of the Transaction Documents, provided, that none of the following
alone shall be deemed, in and of itself, to constitute a Material Adverse
Effect: (i) a change in the market price or trading volume of the Common Stock
or (ii) changes in general economic conditions or changes affecting the industry
in which the Company operates generally (as opposed to Company-specific changes)
so long as such changes do not have a disproportionate effect on the Company and
its Subsidiaries taken as a whole.


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         "MATERIAL PERMITS" has the meaning set forth in SECTION 3.1(V).

         "OPTIONS" means any outstanding rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.

         "PERSON" means any individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, or joint stock company.

         "PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, or a partial proceeding, such as a deposition),
whether commenced or threatened in writing.

         "PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

         "REGISTRABLE SECURITIES" means the Common Shares and the Warrant Shares
issued or issuable pursuant to the Transaction Documents, together with any
securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing.

         "REGISTRATION STATEMENT" means each registration statement required to
be filed under Article VI, including (in each case) the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.

         "REGULATION D" has the meaning set forth in the Preamble.

         "RELATED PERSON" has the meaning set forth in SECTION 4.7.

         "REPURCHASE NOTICE" has the meaning set forth in SECTION 6.1.

         "REPURCHASE PRICE" has the meaning set forth in SECTION 6.1.

         "REQUIRED EFFECTIVENESS DATE" means the date which is the earliest of
(i) if the Registration Statement does not become subject to review by the SEC,
(a) ninety (90) days after the Closing Date or (b) five (5) Trading Days after


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the Company receives notification from the SEC that the Registration Statement
will not become subject to review and the Company fails to request to accelerate
the effectiveness of the Registration Statement, or (ii) if the Registration
Statement becomes subject to review by the SEC, one hundred and twenty (120)
days after the Closing Date.

         "RULE 144," "RULE 415," and "RULE 424" means Rule 144, Rule 415 and
Rule 424, respectively, promulgated by the SEC pursuant to the Securities Act,
as such Rules may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC having substantially the same effect as
such Rule.

         "SEC" means the Securities and Exchange Commission.

         "SEC REPORTS" has the meaning set forth in SECTION 3.1(G).

         "SECURITIES" has the meaning set forth in the Preamble.

         "SECURITIES ACT" has the meaning set forth in the Preamble.

         "SHARES" means shares of the Company's Common Stock.

         "SHORT SALES" has the meaning set forth in SECTION 3.2(H).

         "SUBSIDIARY" means any direct or indirect subsidiary of the Company.

         "TRADING DAY" means (a) any day on which the Common Stock is listed or
quoted and traded on its primary Trading Market, (b) if the Common Stock is not
then listed or quoted and traded on any Eligible Market, then a day on which
trading occurs on the The Nasdaq National Market (or any successor thereto), or
(c) if trading ceases to occur on the The Nasdaq National Market (or any
successor thereto), any Business Day.

         "TRADING MARKET" means the The Nasdaq National Market or any other
Eligible Market, or any national securities exchange, market or trading or
quotation facility on which the Common Stock is then listed or quoted.

         "TRANSACTION DOCUMENTS" means this Agreement, the schedules and
exhibits attached hereto, the Warrants and the Transfer Agent Instructions.

         "TRANSFER AGENT" means North American Stock Transfer Co., or any
successor transfer agent for the Company.

         "TRANSFER AGENT INSTRUCTIONS" means, with respect to the Company, the
Irrevocable Transfer Agent Instructions, in the form of Exhibit D, executed by
the Company and delivered to and acknowledged in writing by the Transfer Agent

         "WARRANTS" has the meaning set forth in the Preamble.


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         "WARRANT SHARES" has the meaning set forth in the Preamble.

                                   ARTICLE II
                                PURCHASE AND SALE

         2.1 CLOSING. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Investor, and
each Investor shall, severally and not jointly, purchase from the Company, such
number of Common Shares and Warrants for the price set forth opposite such
Investor's name on EXHIBIT A hereto under the headings "Common Shares" and
"Warrants". The date and time of the Closing and shall be 11:00 a.m., New York
City Time, on the Closing Date. The Closing shall take place at the offices of
the Company's Counsel.

         2.2  CLOSING DELIVERIES.

                      (a) At the Closing, the Company shall deliver or cause to
     be delivered to each Investor the following:

                           (i) one or more stock certificates (or copies thereof
provided by the Transfer Agent), free and clear of all restrictive and other
legends (except as expressly provided in SECTION 4.1(B) hereof), evidencing such
number of Common Shares set forth opposite such Investor's name on EXHIBIT A
hereto under the heading "Common Shares," registered in the name of such
Investor;

                           (ii) a Warrant, issued in the name of such Investor,
pursuant to which such Investor shall have the right to acquire such number of
Warrant Shares set forth opposite such Investor's name on EXHIBIT A hereto under
the heading "Warrant Shares";

                           (iii) a legal opinion of Company Counsel, in the form
of EXHIBIT C, executed by such counsel and delivered to the Investors;

                           (iv) duly executed Transfer Agent Instructions
acknowledged by the Company's transfer agent; and

                           (v) approval by each applicable Trading Market of an
additional shares listing application covering all of the Registrable
Securities.

                      (b) At the Closing, each Investor shall deliver or cause
     to be delivered to the Company the purchase price set forth opposite such
     Investor's name on EXHIBIT A hereto under the heading "Purchase Price" in
     United States dollars and in immediately available funds, by wire transfer
     to an account designated in writing to such Investor by the Company for
     such purpose.


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                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investors as follows (which representations and
warranties shall be deemed to apply, where appropriate, to each Subsidiary of
the Company):

                      (a) SUBSIDIARIES. The Company has no Subsidiaries other
     than those listed in SCHEDULE 3.1(A) hereto. Except as disclosed in
     SCHEDULE 3.1(A) hereto, the Company owns, directly or indirectly, all of
     the capital stock or comparable equity interests of each Subsidiary free
     and clear of any Lien and all the issued and outstanding shares of capital
     stock or comparable equity interest of each Subsidiary are validly issued
     and are fully paid, non-assessable and free of preemptive and similar
     rights.

                      (b) ORGANIZATION AND QUALIFICATION. Each of the Company
     and the Subsidiaries is an entity duly organized, validly existing and in
     good standing under the laws of the jurisdiction of its incorporation or
     organization (as applicable), with the requisite legal authority to own and
     use its properties and assets and to carry on its business as currently
     conducted. Neither the Company nor any Subsidiary is in violation of any of
     the provisions of its respective certificate or articles of incorporation,
     bylaws or other organizational or charter documents. Each of the Company
     and the Subsidiaries is duly qualified to do business and is in good
     standing as a foreign corporation or other entity in each jurisdiction in
     which the nature of the business conducted or property owned by it makes
     such qualification necessary, except where the failure to be so qualified
     or in good standing, as the case may be, would not, individually or in the
     aggregate, have or reasonably be expected to result in a Material Adverse
     Effect.

                      (c) AUTHORIZATION; ENFORCEMENT. The Company has the
     requisite corporate authority to enter into and to consummate the
     transactions contemplated by each of the Transaction Documents to which it
     is a party and otherwise to carry out its obligations hereunder and
     thereunder. The execution and delivery of each of the Transaction Documents
     to which it is a party by the Company and the consummation by it of the
     transactions contemplated hereby and thereby have been duly authorized by
     all necessary action on the part of the Company and no further consent or
     action is required by the Company, its Board of Directors or its
     stockholders. Each of the Transaction Documents to which it is a party has
     been (or upon delivery will be) duly executed by the Company and is, or
     when delivered in accordance with the terms hereof, will constitute, the
     valid and binding obligation of the Company enforceable against the Company
     in accordance with its terms, except as may be limited by (i) applicable
     bankruptcy, insolvency, reorganization or other laws of general application
     relating to or affecting the enforcement of creditors rights generally, and
     (ii) the effect of rules of law governing the availability of specific
     performance and other equitable remedies.

                      (d) NO CONFLICTS. The execution, delivery and performance
     of the Transaction Documents to which it is a party by the Company and the
     consummation by the Company of the transactions contemplated hereby and
     thereby do not, and will not, (i) conflict with or violate any provision of
     the Company's or any Subsidiary's certificate or articles of incorporation,


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     bylaws or other organizational or charter documents, (ii) conflict with, or
     constitute a default (or an event that with notice or lapse of time or both
     would become a default) under, or give to others any rights of termination,
     amendment, acceleration or cancellation (with or without notice, lapse of
     time or both) of, any agreement, credit facility, debt or other instrument
     (evidencing a Company or Subsidiary debt or otherwise) or other
     understanding to which the Company or any Subsidiary is a party or by which
     any property or asset of the Company or any Subsidiary is bound, or
     affected, except to the extent that such conflict, default, termination,
     amendment, acceleration or cancellation right would not reasonably be
     expected to have a Material Adverse Effect, or (iii) result in a violation
     of any law, rule, regulation, order, judgment, injunction, decree or other
     restriction of any court or governmental authority to which the Company or
     a Subsidiary is subject (including, assuming the accuracy of the
     representations and warranties of the Investors set forth in Section 3.2
     herof, federal and state securities laws and regulations and the rules and
     regulations of any self-regulatory organization to which the Company or its
     securities are subject, including all applicable Trading Markets), or by
     which any property or asset of the Company or a Subsidiary is bound or
     affected, except to the extent that such violation would not reasonably be
     expected to have a Material Adverse Effect.

                      (e) THE SECURITIES. The Securities (including the Warrant
     Shares) are duly authorized and, when issued and paid for in accordance
     with the Transaction Documents, will be duly and validly issued, fully paid
     and nonassessable, free and clear of all Liens and will not be subject to
     preemptive or similar rights of stockholders (other than those imposed by
     the Investors). The Company has reserved from its duly authorized capital
     stock the maximum number of shares of Common Stock issuable upon exercise
     of the Warrants. The offer, issuance and sale of the Shares, the Warrants
     and the Warrant Shares to the Investors pursuant to the Agreement, and in
     the case of the Warrant Shares, pursuant to the Warrants, are exempt from
     the registration requirements of the Securities Act.

                      (f) CAPITALIZATION. The aggregate number of shares and
     type of all authorized, issued and outstanding classes of capital stock,
     options and other securities of the Company (whether or not presently
     convertible into or exercisable or exchangeable for shares of capital stock
     of the Company) is set forth in SCHEDULE 3.1(F) hereto. All outstanding
     shares of capital stock are duly authorized, validly issued, fully paid and
     nonassessable and have been issued in compliance in all material respects
     with all applicable securities laws. Except as disclosed in SCHEDULE 3.1(F)
     hereto, the Company did not have outstanding at May 25, 2006 any other
     options, warrants, script rights to subscribe to, calls or commitments of
     any character whatsoever relating to, or securities, rights or obligations
     convertible into or exercisable or exchangeable for, or entered into any
     agreement giving any Person any right to subscribe for or acquire, any
     shares of Common Stock, or securities or rights convertible or exchangeable
     into shares of Common Stock. Except as set forth on SCHEDULE 3.1(F) hereto,
     and except for customary adjustments as a result of stock dividends, stock
     splits, combinations of shares, reorganizations, recapitalizations,
     reclassifications or other similar events, there are no anti-dilution or
     price adjustment provisions contained in any security issued by the Company
     (or in any agreement providing rights to security holders) and the issuance
     and sale of the Securities will not obligate the Company to issue shares of
     Common Stock or other securities to any Person (other than the Investors)


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     and will not result in a right of any holder of securities to adjust the
     exercise, conversion, exchange or reset price under such securities. To the
     knowledge of the Company, except as disclosed in the SEC Reports and any
     Schedules filed with the SEC pursuant to Rule 13d-1 of the Exchange Act by
     reporting persons or in SCHEDULE 3.1(F) hereto, no Person or group of
     related Persons beneficially owns (as determined pursuant to Rule 13d-3
     under the Exchange Act), or has the right to acquire, by agreement with or
     by obligation binding upon the Company, beneficial ownership of in excess
     of 5% of the outstanding Common Stock.

                      (g) SEC REPORTS; FINANCIAL STATEMENTS. The Company has
     filed all reports required to be filed by it under the Exchange Act,
     including pursuant to SECTION 13(A) or 15(D) thereof, for the 12 months
     preceding the date hereof on a timely basis or has received a valid
     extension of such time of filing and has filed any such SEC Reports prior
     to the expiration of any such extension and has filed all reports required
     to be filed by it under the Exchange Act, including pursuant to Section
     13(a) or 15(d) thereof, for the two years preceding the date hereof. Such
     reports required to be filed by the Company under the Exchange Act,
     including pursuant to Section 13(a) or 15(d) thereof, together with any
     materials filed or furnished by the Company under the Exchange Act, whether
     or not any such reports were required being collectively referred to herein
     as the "SEC REPORTS" and, together with this Agreement and the Schedules to
     this Agreement, the "DISCLOSURE MATERIALS". As of their respective dates,
     the SEC Reports filed by the Company complied in all material respects with
     the requirements of the Securities Act and the Exchange Act and the rules
     and regulations of the SEC promulgated thereunder, and none of the SEC
     Reports, when filed by the Company, contained any untrue statement of a
     material fact or omitted 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
     financial statements of the Company included in the SEC Reports comply in
     all material respects with applicable accounting requirements and the rules
     and regulations of the SEC with respect thereto as in effect at the time of
     filing. Such financial statements have been prepared in accordance with
     United States generally accepted accounting principles applied on a
     consistent basis during the periods involved ("GAAP"), except as may be
     otherwise specified in such financial statements, the notes thereto and
     except that unaudited financial statements may not contain all footnotes
     required by GAAP or may be condensed or summary statements, and fairly
     present in all material respects the consolidated financial position of the
     Company and its consolidated subsidiaries as of and for the dates thereof
     and the results of operations and cash flows for the periods then ended,
     subject, in the case of unaudited statements, to normal, year-end audit
     adjustments. All material agreements to which the Company or any Subsidiary
     is a party or to which the property or assets of the Company or any
     Subsidiary are subject are included as part of or identified in the SEC
     Reports, to the extent such agreements are required to be included or
     identified pursuant to the rules and regulations of the SEC.

                      (h) Since the date of the latest audited financial
     statements included within the SEC Reports, except as disclosed in the SEC
     Reports, (i) there has been no event, occurrence or development that,
     individually or in the aggregate, has had or that would result in a
     Material Adverse Effect, (ii) the Company has not incurred any material
     liabilities other than (A) trade payables and accrued expenses incurred in
     the ordinary course of business consistent with past practice and (B)


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     liabilities not required to be reflected in the Company's financial
     statements pursuant to GAAP or required to be disclosed in filings made
     with the SEC, (iii) the Company has not altered its method of accounting or
     the changed its auditors, except as disclosed in its SEC Reports, (iv) the
     Company has not declared or made any dividend or distribution of cash or
     other property to its stockholders, in their capacities as such, or
     purchased, redeemed or made any agreements to purchase or redeem any shares
     of its capital stock (except for repurchases by the Company of shares of
     capital stock held by employees, officers, directors, or consultants
     pursuant to an option of the Company to repurchase such shares upon the
     termination of employment or services), and (v) the Company has not issued
     any equity securities to any officer, director or Affiliate, except
     pursuant to existing Company stock-based plans. The Company has not taken
     any steps to seek protection pursuant to any bankruptcy law nor does the
     Company have any knowledge or reason to believe that its creditors intend
     to initiate involuntary bankruptcy proceedings or any actual knowledge of
     any fact which would reasonably lead a creditor to do so. The Company is
     not as of the date hereof, and after giving effect to the transactions
     contemplated hereby to occur at the applicable Closing, will not be
     Insolvent (as defined below). For purposes of this Section 3.1(h),
     "Insolvent" means (i) the present fair saleable value of the Company's
     assets is less than the amount required to pay the Company's total
     Indebtedness (as defined in Section 3.1(aa)), (ii) the Company is unable to
     pay its debts and liabilities, subordinated, contingent or otherwise, as
     such debts and liabilities become absolute and matured, (iii) the Company
     intends to incur or believes that it will incur debts that would be beyond
     its ability to pay as such debts mature or (iv) the Company has
     unreasonably small capital with which to conduct the business in which it
     is engaged as such business is now conducted and is proposed to be
     conducted.

                      (i) ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE
     3.1(I), there is no action, suit, claim, or proceeding, or, to the
     Company's knowledge, inquiry or investigation, before or by any court,
     public board, government agency, self-regulatory organization or body
     pending or, to the knowledge of the Company, threatened against or
     affecting the Company or any of its Subsidiaries that could, individually
     or in the aggregate, have a Material Adverse Effect.

                      (j) COMPLIANCE. Neither the Company nor any Subsidiary,
     except in each case as would not, individually or in the aggregate,
     reasonably be expected to have or result in a Material Adverse Effect, (i)
     is in default under or in violation of (and no event has occurred that has
     not been waived that, with notice or lapse of time or both, would result in
     a default by the Company or any Subsidiary under), nor has the Company or
     any Subsidiary received written notice of a claim that it is in default
     under or that it is in violation of, any indenture, loan or credit
     agreement or any other agreement or instrument to which it is a party or by
     which it or any of its properties is bound (whether or not such default or
     violation has been waived), (ii) is in violation of any order of any court,
     arbitrator or governmental body, or (iii) is or has been in violation of
     any statute, rule or regulation of any governmental authority.

                      (k) TITLE TO ASSETS. Except as disclosed in SCHEDULE
     3.1(K) hereto, the Company and the Subsidiaries have good and marketable
     title to all real property owned by them that is material to the business


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     of the Company and the Subsidiaries and good and marketable title in all
     personal property owned by them that is material to the business of the
     Company and the Subsidiaries, in each case free and clear of all Liens,
     except for Liens that do not, individually or in the aggregate, have or
     result in a Material Adverse Effect. Any real property and facilities held
     under lease by the Company and the Subsidiaries are held by them under
     valid, subsisting and enforceable leases of which the Company and the
     Subsidiaries are in material compliance.

                      (l) NO GENERAL SOLICITATION; PLACEMENT AGENT'S FEES.
     Neither the Company, nor any of its affiliates, nor any Person acting on
     its or their behalf, has engaged in any form of general solicitation or
     general advertising (within the meaning of Regulation D) in connection with
     the offer or sale of the Securities. The Company shall be responsible for
     the payment of any placement agent's fees, financial advisory fees, or
     brokers' commission (other than for persons engaged by any Investor or its
     investment advisor) relating to or arising out of the issuance of the
     Securities pursuant to this Agreement. The Company shall pay, and hold each
     Investor harmless against, any liability, loss or expense (including,
     without limitation, reasonable attorney's fees and out-of-pocket expenses)
     arising in connection with any such claim for fees arising out of the
     issuance of the Securities pursuant to this Agreement. The Company
     acknowledges that is has engaged Cowen & Co., LLC as its lead placement
     agent (the "AGENT") in connection with the sale of the Securities. Other
     than the Agent, the Company has not engaged any placement agent or other
     agent in connection with the sale of the Securities.

                      (m) PRIVATE PLACEMENT. Neither the Company nor any of its
     Affiliates nor, any Person acting on the Company's behalf has, directly or
     indirectly, at any time within the past six months, made any offer or sale
     of any security or solicitation of any offer to buy any security under
     circumstances that would (i) eliminate the availability of the exemption
     from registration under Regulation D under the Securities Act in connection
     with the offer and sale by the Company of the Securities as contemplated
     hereby or (ii) cause the offering of the Securities pursuant to the
     Transaction Documents to be integrated with prior offerings by the Company
     for purposes of any applicable law, regulation or stockholder approval
     provisions, including, without limitation, under the rules and regulations
     of any Trading Market. The Company is not required to be registered as, and
     is not an Affiliate of, an "investment company" within the meaning of the
     Investment Company Act of 1940, as amended. The Company is not required to
     be registered as, a United States real property holding corporation within
     the meaning of the Foreign Investment in Real Property Tax Act of 1980.

                      (n) FORM S-3 ELIGIBILITY. The Company is eligible to
     register the Common Shares and the Warrant Shares for resale by the
     Investors using Form S-3 promulgated under the Securities Act.

                      (o) LISTING AND MAINTENANCE REQUIREMENTS. The Company has
     not, in the twelve months preceding the date hereof, received notice
     (written or oral) from any Trading Market on which the Common Stock is or
     has been listed or quoted to the effect that the Company is not in
     compliance with the listing or maintenance requirements of such Trading
     Market. The Company is in compliance with all such listing and maintenance
     requirements.


                                       11




<PAGE>

                      (p) REGISTRATION RIGHTS. Except as described in SCHEDULE
     3.1(P), the Company has not granted or agreed to grant to any Person any
     rights (including "piggy-back" registration rights) to have any securities
     of the Company registered with the SEC or any other governmental authority
     that have not been satisfied or waived.

                      (q) APPLICATION OF TAKEOVER PROTECTIONS. There is no
     control share acquisition, business combination, poison pill (including any
     distribution under a rights agreement) or other similar anti-takeover
     provision under the Company's charter documents or the laws of its state of
     incorporation that is or could become applicable to any of the Investors as
     a result of the Investors and the Company fulfilling their obligations or
     exercising their rights under the Transaction Documents, including, without
     limitation, as a result of the Company's issuance of the Securities and the
     Investors' ownership of the Securities.

                      (r) DISCLOSURE. The Company confirms that neither it nor
     any officers, directors or Affiliates, has provided any of the Investors
     (other than Excluded Investors) or their agents or counsel with any
     information that constitutes or might constitute material, nonpublic
     information (other than the existence and terms of the issuance of
     Securities, as contemplated by this Agreement). The Company confirms that
     neither it nor any officers, directors or Affiliates, has provided any of
     the Investors (other than Excluded Investors) or their agents or counsel
     with any information that constitutes or might constitute material,
     nonpublic information (other than the existence and terms of the issuance
     of Securities, as contemplated by this Agreement). The Company understands
     and confirms that each of the Investors will rely on the foregoing
     representations in effecting transactions in securities of the Company
     (other than Excluded Investors). All disclosure provided by the Company to
     the Investors regarding the Company, its business and the transactions
     contemplated hereby, including the Schedules to this Agreement, furnished
     by or on the behalf of the Company are true and correct in all material
     respects and do not contain any untrue statement of a material fact or omit
     to state any material fact necessary in order to make the statements made
     therein, in the light of the circumstances under which they were made, not
     misleading. To the Company's knowledge, except for the transactions
     contemplated by this Agreement, no event or circumstance has occurred or
     information exists with respect to the Company or any of its Subsidiaries
     or its or their business, properties, operations or financial conditions,
     which, under applicable law, rule or regulation, requires public disclosure
     or announcement by the Company but which has not been so publicly announced
     or disclosed. The Company acknowledges and agrees that no Investor (other
     than Excluded Investors) makes or has made any representations or
     warranties with respect to the transactions contemplated hereby other than
     those set forth in the Transaction Documents.

                      (s) ACKNOWLEDGMENT REGARDING INVESTORS' PURCHASE OF
     SECURITIES. Based upon the assumption that the transactions contemplated by
     this Agreement are consummated in all material respects in conformity with
     the Transaction Documents, the Company acknowledges and agrees that each of
     the Investors (other than Excluded Investors) is acting solely in the
     capacity of an arm's length purchaser with respect to the Transaction
     Documents and the transactions contemplated hereby and thereby. The Company
     further acknowledges that no Investor (other than Excluded Investors) is
     acting as a financial advisor or fiduciary of the Company (or in any


                                       12




<PAGE>

     similar capacity) with respect to this Agreement and the transactions
     contemplated hereby and any advice given by any Investor (other than
     Excluded Investors) or any of their respective representatives or agents in
     connection with the Transaction Documents and the transactions contemplated
     hereby and thereby is merely incidental to the Investors' purchase of the
     Securities. The Company further represents to each Investor that the
     Company's decision to enter into this Agreement has been based solely on
     the independent evaluation of the transactions contemplated hereby by the
     Company and its representatives.

                      (t) PATENTS AND TRADEMARKS. The Company and its
     Subsidiaries own, or possess adequate rights or licenses to use, all
     trademarks, trade names, service marks, service mark registrations, service
     names, patents, patent rights, copyrights, inventions, licenses, approvals,
     governmental authorizations, trade secrets and other intellectual property
     rights ("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their
     respective businesses now conducted. Except as set forth in Schedule
     3.1(t), none of the Company's Intellectual Property Rights have expired or
     terminated, or are expected to expire or terminate, within three years from
     the date of this Agreement. The Company does not have any knowledge of any
     infringement by the Company or its Subsidiaries of Intellectual Property
     Rights of others. Except as disclosed in the SEC Reports, there is no
     claim, action or proceeding being made or brought, or to the knowledge of
     the Company, being threatened, against the Company or its Subsidiaries
     regarding its Intellectual Property Rights.

                      (u) INSURANCE. The Company and the Subsidiaries are
     insured by insurers of recognized financial responsibility against such
     losses and risks and in such amounts as are prudent and customary in the
     businesses and location in which the Company and the Subsidiaries are
     engaged.

                      (v) REGULATORY PERMITS. The Company and the Subsidiaries
     possess all certificates, authorizations and permits issued by the
     appropriate federal, state, local or foreign regulatory authorities
     necessary to conduct their respective businesses as described in the SEC
     Reports ("MATERIAL PERMITS"), except where the failure to possess such
     permits does not, individually or in the aggregate, have or reasonably be
     expected to result in a Material Adverse Effect, and neither the Company
     nor any Subsidiary has received any written notice of proceedings relating
     to the revocation or modification of any Material Permit.

                      (w) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as
     set forth or incorporated by reference in the Company's SEC Reports, none
     of the officers, directors or employees of the Company is presently a party
     to any transaction that would be required to be reported on Form 10-K with
     the Company or any of its Subsidiaries (other than for ordinary course
     services as employees, officers or directors), including any contract,
     agreement or other arrangement providing for the furnishing of services to
     or by, providing for rental of real or personal property to or from, or
     otherwise requiring payments to or from any such officer, director or
     employee or, to the Company's knowledge , any corporation, partnership,
     trust or other entity in which any such officer, director, or employee has
     a substantial interest or is an officer, director, trustee or partner.


                                       13




<PAGE>

                      (x) INTERNAL ACCOUNTING CONTROLS. Except as set forth in
     the Company's SEC Reports, the Company and the Subsidiaries maintain a
     system of internal accounting controls sufficient to provide reasonable
     assurance 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 generally accepted accounting principles and to maintain
     asset accountability, (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 the existing assets
     at reasonable intervals and appropriate action is taken with respect to any
     differences.

                      (y) SARBANES-OXLEY ACT. Except as set forth in the
     Company's SEC Reports, the Company is in compliance in all material
     respects with applicable requirements of the Sarbanes-Oxley Act of 2002 and
     applicable rules and regulations promulgated by the SEC thereunder, except
     where such noncompliance would not have, individually or in the aggregate,
     a Material Adverse Effect.

                      (z) FOREIGN CORRUPT PRACTICES. Neither the Company nor any
     of its Subsidiaries nor, to the knowledge of the Company, any director,
     officer, agent, employee or other Person acting on behalf of the Company or
     any of its Subsidiaries has, in the course of its actions for, or on behalf
     of, the Company (i) used any corporate funds for any unlawful contribution,
     gift, entertainment or other unlawful expenses relating to political
     activity; (ii) made any direct or indirect unlawful payment to any foreign
     or domestic government official or employee from corporate funds; (iii)
     violated or is in violation of any provision of the U.S. Foreign Corrupt
     Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
     payoff, influence payment, kickback or other unlawful payment to any
     foreign or domestic government official or employee.

                      (aa) INDEBTEDNESS. Except as disclosed in SCHEDULE
     3.1(AA), neither the Company nor any of its Subsidiaries (i) has any
     outstanding Indebtedness (as defined below), (ii) is in violation of any
     term of or in default under any contract, agreement or instrument relating
     to any Indebtedness, except where such violations and defaults would not
     result, individually or in the aggregate, in a Material Adverse Effect, or
     (iii) is a party to any contract, agreement or instrument relating to any
     Indebtedness, the performance of which, in the judgment of the Company's
     officers, has or is expected to have a Material Adverse Effect. SCHEDULE
     3.1(AA) provides a description of the terms of any such outstanding
     Indebtedness. For purposes of this Agreement: (x) "Indebtedness" of any
     Person means, without duplication (A) all indebtedness for borrowed money,
     (B) all obligations issued, undertaken or assumed as the deferred purchase
     price of property or services (other than trade payables entered into in
     the ordinary course of business), (C) all reimbursement or payment
     obligations with respect to letters of credit, surety bonds and other
     similar instruments, (D) all obligations evidenced by notes, bonds,
     debentures or similar instruments, including obligations so evidenced
     incurred in connection with the acquisition of property, assets or
     businesses, (E) all indebtedness created or arising under any conditional
     sale or other title retention agreement, or incurred as financing, in
     either case with respect to any property or assets acquired with the
     proceeds of such indebtedness (even though the rights and remedies of the


                                       14




<PAGE>

     seller or bank under such agreement in the event of default are limited to
     repossession or sale of such property), (F) all monetary obligations under
     any leasing or similar arrangement which, in connection with generally
     accepted accounting principles, consistently applied for the periods
     covered thereby, is classified as a capital lease, (G) all indebtedness
     referred to in clauses (A) through (F) above secured by (or for which the
     holder of such Indebtedness has an existing right, contingent or otherwise,
     to be secured by) any mortgage, lien, pledge, charge, security interest or
     other encumbrance upon or in any property or assets (including accounts and
     contract rights) owned by any Person, even though the Person which owns
     such assets or property has not assumed or become liable for the payment of
     such indebtedness, and (H) all Contingent Obligations in respect of
     indebtedness or obligations of others of the kinds referred to in clauses
     (A) through (G) above; (y) "Contingent Obligation" means, as to any Person,
     any direct or indirect liability, contingent or otherwise, of that Person
     with respect to any indebtedness, lease, dividend or other obligation of
     another Person if the primary purpose or intent of the Person incurring
     such liability, or the primary effect thereof, is to provide assurance to
     the obligee of such liability that such liability will be paid or
     discharged, or that any agreements relating thereto will be complied with,
     or that the holders of such liability will be protected (in whole or in
     part) against loss with respect thereto; and (z) "Person" means an
     individual, a limited liability company, a partnership, a joint venture, a
     corporation, a trust, an unincorporated organization and a government or
     any department or agency thereof.

                      (bb) EMPLOYEE RELATIONS. Neither Company nor any of its
     Subsidiaries is a party to any collective bargaining agreement or employs
     any member of a union. The Company believes that its relations with its
     employees are as disclosed in the SEC Reports. Except as disclosed in the
     SEC Reports, during the period covered by the SEC Reports, no executive
     officer of the Company or any of its Subsidiaries (as defined in Rule
     501(f) of the 1933 Act) has notified the Company or any such Subsidiary
     that such officer intends to leave the Company or any such Subsidiary or
     otherwise terminate such officer's employment with the Company or any such
     Subsidiary. To the knowledge of the Company or any such Subsidiary, no
     executive officer of the Company or any of its Subsidiaries is in violation
     of any material term of any employment contract, confidentiality,
     disclosure or proprietary information agreement, non-competition agreement,
     or any other contract or agreement or any restrictive covenant, and the
     continued employment of each such executive officer does not subject the
     Company or any such Subsidiary to any liability with respect to any of the
     foregoing matters.

                      (cc) LABOR MATTERS. The Company and its Subsidiaries are
     in compliance in all material respects with all federal, state, local and
     foreign laws and regulations respecting labor, employment and employment
     practices and benefits, terms and conditions of employment and wages and
     hours, except where failure to be in compliance would not, either
     individually or in the aggregate, reasonably be expected to result in a
     Material Adverse Effect.

                      (dd) ENVIRONMENTAL LAWS. The Company and its Subsidiaries
     (i) are in compliance in all material respects with any and all
     Environmental Laws (as hereinafter defined), (ii) have received all
     permits, licenses or other approvals required of them under applicable
     Environmental Laws to conduct their respective businesses and (iii) are in


                                       15




<PAGE>

     compliance in all material respects with all terms and conditions of any
     such permit, license or approval where, in each of the foregoing clauses
     (i), (ii) and (iii), the failure to so comply would be reasonably expected
     to have, individually or in the aggregate, a Material Adverse Effect. The
     term "Environmental Laws" means all federal, state, local or foreign laws
     relating to pollution or protection of human health or the environment
     (including, without limitation, ambient air, surface water, groundwater,
     land surface or subsurface strata), including, without limitation, laws
     relating to emissions, discharges, releases or threatened releases of
     chemicals, pollutants, contaminants, or toxic or hazardous substances or
     wastes (collectively, "Hazardous Materials") into the environment, or
     otherwise relating to the manufacture, processing, distribution, use,
     treatment, storage, disposal, transport or handling of Hazardous Materials,
     as well as all authorizations, codes, decrees, demands or demand letters,
     injunctions, judgments, licenses, notices or notice letters, orders,
     permits, plans or regulations issued, entered, promulgated or approved
     thereunder.

                      (ee) SUBSIDIARY RIGHTS. Except as set forth in Schedule
     3.1(ee), the Company or one of its Subsidiaries has the unrestricted right
     to vote, and (subject to limitations imposed by applicable law) to receive
     dividends and distributions on, all capital securities of its Subsidiaries
     as owned by the Company or such Subsidiary.

                      (ff) TAX STATUS. The Company and each of its Subsidiaries
     (i) has made or filed all foreign, federal and state income and all other
     tax returns, reports and declarations required by any jurisdiction to which
     it is subject, (ii) has paid all taxes and other governmental assessments
     and charges that are material in amount, shown or determined to be due on
     such returns, reports and declarations, except those being contested in
     good faith and (iii) has set aside on its books provision reasonably
     adequate for the payment of all taxes for periods subsequent to the periods
     to which such returns, reports or declarations apply. There are no unpaid
     taxes in any material amount claimed to be due by the taxing authority of
     any jurisdiction, and the officers of the Company know of no basis for any
     such claim.

         3.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby, as to itself only and for no other Investor, represents and warrants to
the Company as follows:

                      (a) ORGANIZATION; AUTHORITY. Such Investor is an entity
     duly organized, validly existing and in good standing under the laws of the
     jurisdiction of its organization with the requisite corporate, partnership
     or other power and authority to enter into and to consummate the
     transactions contemplated by the Transaction Documents and otherwise to
     carry out its obligations hereunder and thereunder. The purchase by such
     Investor of the Securities hereunder has been duly authorized by all
     necessary action on the part of such Investor. This Agreement has been duly
     executed and delivered by such Investor and constitutes the valid and
     binding obligation of such Investor, enforceable against it in accordance
     with its terms, except as may be limited by (i) applicable bankruptcy,
     insolvency, reorganization or other laws of general application relating to
     or affecting the enforcement of creditors rights generally, and (ii) the
     effect of rules of law governing the availability of specific performance
     and other equitable remedies.


                                       16




<PAGE>

                      (b) NO PUBLIC SALE OR DISTRIBUTION. Such Investor is (i)
     acquiring the Common Shares and the Warrants and (ii) upon exercise of the
     Warrants will acquire the Warrant Shares issuable upon exercise thereof, in
     the ordinary course of business for its own account and not with a view
     towards, or for resale in connection with, the public sale or distribution
     thereof, except pursuant to sales registered under the Securities Act or
     under an exemption from such registration and in compliance with applicable
     federal and state securities laws, and such Investor does not have a
     present arrangement to effect any distribution of the Securities to or
     through any person or entity; PROVIDED, HOWEVER, that by making the
     representations herein, such Investor does not agree to hold any of the
     Securities for any minimum or other specific term and reserves the right to
     dispose of the Securities at any time in accordance with or pursuant to a
     registration statement or an exemption under the Securities Act.

                      (c) INVESTOR STATUS. At the time such Investor was offered
     the Securities, it was, and at the date hereof it is, an "accredited
     investor" as defined in Rule 501(a) under the Securities Act or a
     "qualified institutional buyer" as defined in Rule 144A(a) under the
     Securities Act. Such Investor is not a registered broker dealer registered
     under Section 15(a) of the Exchange Act, or a member of the NASD, Inc. or
     an entity engaged in the business of being a broker dealer. Except as
     otherwise disclosed in writing to the Company on Exhibit B-2 (attached
     hereto) on or prior to the date of this Agreement, such Investor is not
     affiliated with any broker dealer registered under Section 15(a) of the
     Exchange Act, or a member of the NASD, Inc. or an entity engaged in the
     business of being a broker dealer.

                      (d) EXPERIENCE OF SUCH INVESTOR. Such Investor, either
     alone or together with its representatives has such knowledge,
     sophistication and experience in business and financial matters so as to be
     capable of evaluating the merits and risks of the prospective investment in
     the Securities, and has so evaluated the merits and risks of such
     investment. Such Investor understands that it must bear the economic risk
     of this investment in the Securities indefinitely, and is able to bear such
     risk and is able to afford a complete loss of such investment.

                      (e) ACCESS TO INFORMATION. Such Investor acknowledges that
     it has reviewed the Disclosure Materials and has been afforded: (i) the
     opportunity to ask such questions as it has deemed necessary of, and to
     receive answers from, representatives of the Company concerning the terms
     and conditions of the offering of the Securities and the merits and risks
     of investing in the Securities; (ii) access to information (other than
     material non-public information) about the Company and the Subsidiaries and
     their respective financial condition, results of operations, business,
     properties, management and prospects sufficient to enable it to evaluate
     its investment; and (iii) the opportunity to obtain such additional
     information that the Company possesses or can acquire without unreasonable
     effort or expense that is necessary to make an informed investment decision
     with respect to the investment. Neither such inquiries nor any other
     investigation conducted by or on behalf of such Investor or its
     representatives or counsel shall modify, amend or affect such Investor's
     right to rely on the truth, accuracy and completeness of the Disclosure
     Materials and the Company's representations and warranties contained in the
     Transaction Documents. Such Investor acknowledges receipt of copies of the
     SEC Reports.


                                       17




<PAGE>

                      (f) NO GOVERNMENTAL REVIEW. Such Investor understands that
     no United States federal or state agency or any other government or
     governmental agency has passed on or made any recommendation or endorsement
     of the Securities or the fairness or suitability of the investment in the
     Securities nor have such authorities passed upon or endorsed the merits of
     the offering of the Securities.

                      (g) NO CONFLICTS. The execution, delivery and performance
     by such Investor of this Agreement and the consummation by such Investor of
     the transactions contemplated hereby will not (i) result in a violation of
     the organizational documents of such Investor or (ii) conflict with, or
     constitute a default (or an event which with notice or lapse of time or
     both would become a default) under, or give to others any rights of
     termination, amendment, acceleration or cancellation of, any agreement,
     indenture or instrument to which such Investor is a party, or (iii) result
     in a violation of any law, rule, regulation, order, judgment or decree
     (including federal and state securities laws) applicable to such Investor,
     except in the case of clauses (ii) and (iii) above, for such that are not
     material and do not otherwise affect the ability of such Investor to
     consummate the transactions contemplated hereby.

                      (h) ILLEGAL TRANSACTIONS. No Investor, directly or
     indirectly, and no Person acting on behalf of or pursuant to any
     understanding with any Investor, has engaged in any transactions in the
     securities of the Company (including, without limitation, any Short Sales
     involving any of the Company's securities) since the time that such
     Investor was first contacted by the Company, the Agent or any other Person
     regarding this investment in the Company. Such Investor covenants that
     neither it nor any Person acting on its behalf or pursuant to any
     understanding with such Investor will engage, directly or indirectly, in
     any transactions in the securities of the Company (including Short Sales)
     prior to the time the transactions contemplated by this Agreement are
     publicly disclosed. "Short Sales" include, without limitation, all "short
     sales" as defined in Rule 200 promulgated under Regulation SHO under the
     Exchange Act and all types of direct and indirect stock pledges, forward
     sale contracts, options, puts, calls, short sales, swaps, derivatives and
     similar arrangements (including on a total return basis), and sales and
     other transactions through non-U.S. broker-dealers or foreign regulated
     brokers.

                  (i) RESTRICTED SECURITIES. The Investors understand that the
         Securities are characterized as "restricted securities" under the U.S.
         federal securities laws inasmuch as they are being acquired from the
         Company in a transaction not involving a public offering and that under
         such laws and applicable regulations such securities may be resold
         without registration under the Securities Act only in certain limited
         circumstances.

                  (j) LEGENDS. It is understood that, except as provided in
         Section 4.1(b) of this Agreement, certificates evidencing such
         Securities may bear the legend set forth in Section 4.1(b)


                                       18




<PAGE>

                  (k) NO LEGAL, TAX OR INVESTMENT ADVICE. Such Investor
         understands that nothing in this Agreement or any other materials
         presented by or on behalf of the Company to the Investor in connection
         with the purchase of the Securities constitutes legal, tax or
         investment advice. Such Investor has consulted such legal, tax and
         investment advisors as it, in its sole discretion, has deemed necessary
         or appropriate in connection with its purchase of the Securities. Such
         Investor understands that the Agent has acted solely as the agent of
         the Company in this placement of the Securities, and that the Agent
         makes no representation or warranty with regard to the merits of this
         transaction or as to the accuracy of any information such Investor may
         have received in connection therewith. Such Investor acknowledges that
         he has not relied on any information or advice furnished by or on
         behalf of the Agent.

                                   ARTICLE IV
                         OTHER AGREEMENTS OF THE PARTIES

         4.1  TRANSFER RESTRICTIONS.

                      (a) The Investors covenant that the Securities will only
     be disposed of pursuant to an effective registration statement under, and
     in compliance with the requirements of, the Securities Act or pursuant to
     an available exemption from the registration requirements of the Securities
     Act, and in compliance with any applicable state securities laws. In
     connection with any transfer of Securities other than pursuant to an
     effective registration statement or to the Company, or pursuant to Rule
     144(k), the Company may require the transferor to provide to the Company an
     opinion of counsel selected by the transferor, the form and substance of
     which opinion shall be reasonably satisfactory to the Company, to the
     effect that such transfer does not require registration under the
     Securities Act. Notwithstanding the foregoing, the Company hereby consents
     to and agrees to register on the books of the Company and with its transfer
     agent, without any such legal opinion, except to the extent that the
     transfer agent requests such legal opinion, any transfer of Securities by
     an Investor to an Affiliate of such Investor, provided that the transferee
     certifies to the Company that it is an "accredited investor" as defined in
     Rule 501(a) under the Securities Act and provided that such Affiliate does
     not request any removal of any existing legends on any certificate
     evidencing the Securities.

                      (b) The Investors agree to the imprinting, so long as is
     required by this SECTION 4.1(B), of the following legend on any certificate
     evidencing any of the Securities:

         THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
         EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
         RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
         OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE
         SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
         PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
         ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
         SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
         COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.


                                       19




<PAGE>

Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a registration statement (including the
Registration Statement) covering the resale of the Securities is effective under
the Securities Act, (ii) following any sale of such Securities pursuant to Rule
144 if the holder provides the Company with a legal opinion (and the documents
upon which the legal opinion is based) reasonable acceptance to the Company to
the effect that the Securities can be sold under Rule 144, (iii) if the holder
provides the Company with a legal opinion (and the documents upon which the
legal opinion is based) reasonably acceptable to the Company to the effect that
the Securities are eligible for sale under Rule 144(k), or (iv) if the holder
provides the Company with a legal opinion (and the documents upon which the
legal opinion is based) reasonably acceptable to the Company to the effect that
the legend is not required under applicable requirements of the Securities Act
(including controlling judicial interpretations and pronouncements issued by the
Staff of the SEC). The Company shall cause its counsel to issue the legal
opinion included in the Transfer Agent Instructions to the Transfer Agent on the
Effective Date. Following the Effective Date or at such earlier time as a legend
is no longer required for certain Securities, the Company will no later than
three Trading Days following the delivery by an Investor to the Company or the
Transfer Agent of (i) a legended certificate representing such Securities and
(ii) an opinion of counsel to the extent required by SECTION 4.1(A), deliver or
cause to be delivered to such Investor a certificate representing such
Securities that is free from all restrictive and other legends. The Company may
not make any notation on its records or give instructions to the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section.

         If within three Trading Days after the Company's receipt of a legended
certificate and the other documents as specified in Clauses (i) and (ii) of the
paragraph immediately above, the Company shall fail to issue and deliver to such
Investor a certificate representing such Securities that is free from all
restrictive and other legends, and if on or after such Trading Day the Investor
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Investor of shares of Common Stock that
the Investor anticipated receiving from the Company without any restrictive
legend (the "COVERING SHARES"), then the Company shall, within three Trading
Days after the Investor's request, pay cash to the Investor in an amount equal
to the excess (if any) of the Investor's total purchase price (including
brokerage commissions, if any) for the Covering Shares, over the product of (A)
the number of Covering Shares, times (B) the closing bid price on the date of
delivery of such certificate and the other documents as specified in Clauses (i)
and (ii) of the paragraph immediately above.

                  (c) The Company will not object to and shall permit (except as
         prohibited by law) an Investor to pledge or grant a security interest
         in some or all of the Securities in connection with a bona fide margin
         agreement or other loan or financing arrangement secured by the
         Securities, and if required under the terms of such agreement, loan or
         arrangement, the Company will not object to and shall permit (except as
         prohibited by law) such Investor to transfer pledged or secured
         Securities to the pledges or secured parties. Except as required by
         law, such a pledge or transfer would not be subject to approval of the
         Company, no legal opinion of the pledgee, secured party or pledgor
         shall be required in connection therewith, and no notice shall be
         required of such pledge. Each Investor acknowledges that the Company


                                       20




<PAGE>

         shall not be responsible for any pledges relating to, or the grant of
         any security interest in, any of the Securities or for any agreement,
         understanding or arrangement between any Investor and its pledgee or
         secured party. At the appropriate Investor's expense, the Company will
         execute and deliver such reasonable documentation as a pledgee or
         secured party of Securities may reasonably request in connection with a
         pledge or transfer of the Securities, including the preparation and
         filing of any required prospectus supplement under Rule 424(b)(3) of
         the Securities Act or other applicable provision of the Securities Act
         to appropriately amend the list of Selling Stockholders thereunder.
         Provided that the Company is in compliance with the terms of this
         Section 4.1(c), the Company's indemnification obligations pursuant to
         Section 6.4 shall not extend to any Proceeding or Losses arising out of
         or related to this Section 4.1(c).

         4.2 FURNISHING OF INFORMATION. Until the date that any Investor owning
Shares or Warrant Shares may sell all of them under Rule 144(k) of the
Securities Act (or any successor provision), the Company shall timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. The Company further covenants that it will take
such further action as any holder of Securities may reasonably request to
satisfy the provisions of this Section 4.2.

         4.3 INTEGRATION. The Company shall not, and shall use its commercially
reasonably efforts to ensure that no Affiliate thereof shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investors or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market. The Company
further covenants that it shall not issue or register any additional shares of
Common Stock until after effectiveness of the Registration Statement other than
issuances and/or registrations in connection with (i) the exercise of
outstanding options and/or warrants, (ii) stock based compensation plans on Form
S-8, or (iii) acquisitions on Form S-4.

         4.4 ACKNOWLEDGEMENT REGARDING INVESTORS' TRADING ACTIVITY. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, but subject
to compliance by the Investors with applicable law, it is understood and
acknowledged by the Company (i) that none of the Investors have been asked to
agree, nor has any Investor agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) that past or future open market or other transactions by any
Investor, including, without limitation, short sales or "derivative"
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Investor, and counter parties in
"derivative" transactions to which any such Investor is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and (iv)
that each Investor shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction. The Company
further understands and acknowledges that (a) one or more Investors may engage
in hedging activities at various times during the period that the Securities are


                                       21




<PAGE>

outstanding, (b) such hedging activities (if any) could reduce the value of the
existing stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted and (c) nothing contained herein
shall preclude any Investor from having taken or from taking any action in
respect of the identification of the availability of, or securing of, available
shares to borrow in order to effect short sales or similar transactions.

         4.5 RESERVATION OF SECURITIES. The Company shall maintain a reserve
from its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations to issue such Shares under the Transaction Documents. In the event
that at any time the then authorized shares of Common Stock are insufficient for
the Company to satisfy its obligations to issue such Shares under the
Transaction Documents, the Company shall promptly take such actions as may be
required to increase the number of authorized shares.

         4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, on or
before 8:30 a.m., New York time, on the first Trading Day following execution of
this Agreement, issue a press release reasonably acceptable to the Investors
disclosing all material terms of the transactions contemplated hereby. On the
Closing Date, the Company shall file a Current Report on Form 8-K with the SEC
(the "8-K FILING") describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form
8-K the Transaction Documents (including the schedules and the names, and
addresses of the Investors and the amount(s) of Securities respectively
purchased) and the form of Warrants, in the form required by the Exchange Act.
Thereafter, the Company shall timely file any filings and notices required by
the SEC or applicable law with respect to the transactions contemplated hereby
and provide copies thereof to the Investors promptly after filing. Except as
herein provided, the Company shall not publicly disclose the name of any
Investor, or include the name of any Investor in any press release without the
prior written consent of such Investor, unless otherwise required by law. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide any
Investor with any material nonpublic information regarding the Company or any of
its Subsidiaries from and after the issuance of the above referenced press
release without the express written consent of such Investor.

         4.7 USE OF PROCEEDS. The Company intends to use the net proceeds from
the sale of the Securities for working capital and general corporate purposes.
The Company also may use a portion of the net proceeds, currently intended for
general corporate purposes, to acquire or invest in technologies, products or
services that complement its business, although the Company has no present plans
or commitments and is not currently engaged in any material negotiations with
respect to these types of transactions. Pending these uses, the Company intends
to invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities, or as otherwise pursuant to the Company's customary
investment policies.


                                       22




<PAGE>

                                    ARTICLE V
                                   CONDITIONS

         5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTORS. The
obligation of each Investor to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Investor, at or before the Closing, of each
of the following conditions:

                      (a) REPRESENTATIONS AND WARRANTIES. The representations
     and warranties of the Company contained herein shall be true and correct in
     all material respects as of the date when made and as of the Closing as
     though made on and as of such date; and

                      (b) PERFORMANCE. The Company and each other Investor shall
     have performed, satisfied and complied in all material respects with all
     covenants, agreements and conditions required by the Transaction Documents
     to be performed, satisfied or complied with by it at or prior to the
     Closing.

                      (c) LISTING. The Common Stock (i) shall be designated for
     quotation or listed on the Nasdaq National Market and (ii) shall not have
     been suspended, as of the Closing Date, by the SEC or the Nasdaq National
     Market from trading on the Nasdaq National Market nor shall suspension by
     the SEC or the Nasdaq National Market have been threatened, as of the
     Closing Date, either (a) in writing by the SEC or the Nasdaq National
     Market or (b) by falling below the minimum listing maintenance requirements
     of the Nasdaq National Market.

                      (d) CONSENTS AND APPROVALS. The Company shall have
     obtained all governmental, regulatory or third party consents and
     approvals, if any, necessary for the sale of the Securities.

                      (e) NO MATERIAL ADVERSE EFFECT. Between the execution of
     this Agreement and the Closing, no event or series of events (other than
     stock price fluctuations) shall have occurred which reasonably would be
     expected to have or result in a Material Adverse Effect.

                      (f) DELIVERABLES. The Company shall have delivered all of
     the Company Deliverables for distribution at Closing.

         5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to sell the Securities at the Closing is subject to
the satisfaction or waiver by the Company, at or before the Closing, of each of
the following conditions:

                      (a) REPRESENTATIONS AND WARRANTIES. The representations
     and warranties of the Investors contained herein shall be true and correct
     in all material respects as of the date when made and as of the Closing
     Date as though made on and as of such date; and

                      (b) PERFORMANCE. The Investors shall have performed,
     satisfied and complied in all material respects with all covenants,
     agreements and conditions required by the Transaction Documents to be
     performed, satisfied or complied with by the Investors at or prior to the
     Closing.


                                       23




<PAGE>

                                   ARTICLE VI
                               REGISTRATION RIGHTS

         6.1  REGISTRATION STATEMENT.

                      (a) As promptly as possible, and in any event on or prior
     to the Filing Date, the Company shall prepare and file with the SEC a
     Registration Statement covering the resale of all Registrable Securities
     for an offering to be made on a continuous basis pursuant to Rule 415. The
     Registration Statement shall be on Form S-3 (except if the Company is not
     then eligible to register for resale the Registrable Securities on Form
     S-3, in which case such registration shall be on another appropriate form
     in accordance with the Securities Act and the Exchange Act) and shall
     contain (except if otherwise directed by the Investors or requested by the
     SEC) the "Plan of Distribution" in substantially the form attached hereto
     as EXHIBIT D.

                      (b) The Company shall use its commercially reasonable
     efforts to cause the Registration Statement to be declared effective by the
     SEC as promptly as possible after the filing thereof, but in any event
     prior to the Required Effectiveness Date, and shall use its commercially
     reasonable efforts to keep the Registration Statement continuously
     effective under the Securities Act until the earlier of the date that all
     Common Shares and Warrant Shares covered by such Registration Statement
     have been sold or can be sold publicly under Rule 144(k) (the
     "EFFECTIVENESS PERIOD"); PROVIDED THAT, upon notification by the SEC that a
     Registration Statement will not be reviewed or is no longer subject to
     further review and comments, the Company shall request acceleration of such
     Registration Statement within five (5) Trading Days after receipt of such
     notice and request that it becomes effective on 4:00 p.m. New York City
     time on the Effective Date and file a prospectus supplement for any
     Registration Statement, whether or not required under Rule 424 (or
     otherwise), by 9:00 a.m. New York City time the day after the Effective
     Date.

                      (c) The Company shall notify the Investors in writing
     promptly (and in any event within two Trading Days) after receiving
     notification from the SEC that the Registration Statement has been declared
     effective.

                      (d) Should an Event (as defined below) occur, then upon
     the occurrence of such Event, and on every monthly anniversary thereof
     until the applicable Event is cured, as partial relief for the damages
     suffered therefrom by the Investors (which remedy shall not be exclusive of
     any other remedies available under this Agreement, at law or in equity),
     the Company shall pay to each Investor an amount in cash, as liquidated
     damages and not as a penalty, equal to one percent (1.0%) of (i) the number
     of Common Shares held by such Investor as of the date of such Event,
     multiplied by (ii) the per share purchase price paid by such Investor for
     such Common Shares then held; PROVIDED, HOWEVER, that the total amount of
     payments pursuant to the Section 6.1(d) shall not exceed, when aggregated
     with all such payments paid to all Investors shall not exceed ten percent
     (10%) of the aggregate purchase price. The payments to which an Investor
     shall be entitled pursuant to this SECTION 6.1(D) are referred to herein as
     "EVENT PAYMENTS." Any Event Payments payable pursuant to the terms hereof
     shall apply on a pro rata basis for any portion of a month prior to the
     cure of an Event. In the event the Company fails to make Event Payments in


                                       24




<PAGE>

     a timely manner, such Event Payments shall bear interest at the rate of one
     percent (1.0%) per month (prorated for partial months) until paid in full.
     All pro rated calculations made pursuant to this paragraph shall be based
     upon the actual number of days in such pro rated month.

For such purposes, each of the following shall constitute an "Event":

                           (i) the Registration Statement is not filed on or
prior to the Filing Date or is not declared effective on or prior to the
Required Effectiveness Date;

                           (ii) except as provided for in SECTION 6.1(E) (the
"EXCLUDED EVENTS"), after the Effective Date, an Investor is not permitted to
sell Registrable Securities under the Registration Statement (or a subsequent
Registration Statement filed in replacement thereof) for any reason (other than
the fault of such Investor) for five or more Trading Days (whether or not
consecutive);

                           (iii) except as a result of the Excluded Events, the
Common Stock is not listed or quoted, or is suspended from trading, on an
Eligible Market for a period of three Trading Days (which need not be
consecutive Trading Days) during the Effectiveness Period;

                           (iv) with respect to an Investor, the Company fails
for any reason to deliver a certificate evidencing any Securities to such
Investor within five Trading Days after delivery of such certificate is required
pursuant to any Transaction Document or the exercise rights of the Investors
pursuant to the Warrants are otherwise suspended for any reason; or

                           (v) during the Effectiveness Period, except as a
result of the Excluded Events, the Company fails to have any Shares listed on an
Eligible Market.

                      (e) Notwithstanding anything in this Agreement to the
     contrary, after 60 consecutive Trading Days of continuous effectiveness of
     the initial Registration Statement filed and declared effective pursuant to
     this Agreement, the Company may, by written notice to the Investors,
     suspend sales under a Registration Statement after the Effective Date
     thereof and/or require that the Investors immediately cease the sale of
     shares of Common Stock pursuant thereto and/or defer the filing of any
     subsequent Registration Statement if the Company is engaged in a material
     merger, acquisition or sale and the Board of Directors determines in good
     faith, by appropriate resolutions, that, as a result of such activity, (A)
     it would be materially detrimental to the Company (other than as relating
     solely to the price of the Common Stock) to maintain a Registration
     Statement at such time or (B) it is in the best interests of the Company to
     suspend sales under such registration at such time. Upon receipt of such
     notice, each Investor shall immediately discontinue any sales of
     Registrable Securities pursuant to such registration until such Investor is
     advised in writing by the Company that the current Prospectus or amended
     Prospectus, as applicable, may be used. In no event, however, shall this
     right be exercised to suspend sales beyond the period during which (in the
     good faith determination of the Company's Board of Directors) the failure
     to require such suspension would be materially detrimental to the Company.
     The Company's rights under this SECTION 6(E) may be exercised for a period


                                       25




<PAGE>

     of no more than 10 Trading Days at a time and not more than three times in
     any twelve-month period, without such suspension being considered as part
     of an Event Payment determination. Immediately after the end of any
     suspension period under this SECTION 6(E), the Company shall take all
     necessary actions (including filing any required supplemental prospectus)
     to restore the effectiveness of the applicable Registration Statement and
     the ability of the Investors to publicly resell their Registrable
     Securities pursuant to such effective Registration Statement.

                      (f) The Company shall not, from the date hereof until the
     Effective Date of the Registration Statement, prepare and file with the SEC
     a registration statement relating to an offering for its own account or the
     account of others under the Securities Act of any of its equity securities,
     other than any registration statement or post-effective amendment to a
     registration statement (or supplement thereto) relating to the Company's
     employee benefit plans registered on Form S-8.

         6.2 REGISTRATION PROCEDURES. In connection with the Company's
registration obligations hereunder, the Company shall:

                      (a) Not less than three Trading Days prior to the filing
     of a Registration Statement or any related Prospectus or any amendment or
     supplement thereto, furnish via email to those Investors who have supplied
     the Company with email addresses copies of all such documents proposed to
     be filed, which documents (other than any document that is incorporated or
     deemed to be incorporated by reference therein) will be subject to the
     review of such Investors. The Company shall reflect in each such document
     when so filed with the SEC such comments regarding the Investors and the
     plan of distribution as the Investors may reasonably and promptly propose
     no later than two Trading Days after the Investors have been so furnished
     with copies of such documents as aforesaid.

                      (b) (i) Subject to SECTION 6.1(E), prepare and file with
     the SEC such amendments, including post-effective amendments, to each
     Registration Statement and the Prospectus used in connection therewith as
     may be necessary to keep the Registration Statement continuously effective,
     as to the applicable Registrable Securities for the Effectiveness Period
     and prepare and file with the SEC such additional Registration Statements
     in order to register for resale under the Securities Act all of the
     Registrable Securities; (ii) cause the related Prospectus to be amended or
     supplemented by any required Prospectus supplement, and as so supplemented
     or amended to be filed pursuant to Rule 424; (iii) respond as promptly as
     reasonably possible, and in any event within 12 Trading Days (except to the
     extent that the Company reasonably requires additional time to respond to
     accounting comments), to any comments received from the SEC with respect to
     the Registration Statement or any amendment thereto; and (iv) comply in all
     material respects with the provisions of the Securities Act and the
     Exchange Act with respect to the disposition of all Registrable Securities
     covered by the Registration Statement during the applicable period in
     accordance with the intended methods of disposition by the Investors
     thereof set forth in the Registration Statement as so amended or in such
     Prospectus as so supplemented.

                      (c) Notify the Investor as promptly as reasonably
     possible, and (if requested by the Investor confirm such notice in writing
     no later than one Trading Day thereafter, of any of the following events:


                                       26




<PAGE>

     (i) the SEC notifies the Company whether there will be a "review" of any
     Registration Statement; (ii) the SEC comments in writing on any
     Registration Statement; (iii) any Registration Statement or any
     post-effective amendment is declared effective; (iv) the SEC or any other
     Federal or state governmental authority requests any amendment or
     supplement to any Registration Statement or Prospectus or requests
     additional information related thereto; (v) the SEC issues any stop order
     suspending the effectiveness of any Registration Statement or initiates any
     Proceedings for that purpose; (vi) the Company receives notice of any
     suspension of the qualification or exemption from qualification of any
     Registrable Securities for sale in any jurisdiction, or the initiation or
     threat of any Proceeding for such purpose; or (vii) the financial
     statements included in any Registration Statement become ineligible for
     inclusion therein or any Registration Statement or Prospectus or other
     document contains any untrue statement of a material fact or omits to state
     any 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.

                      (d) Use its Best Efforts to avoid the issuance of or, if
     issued, obtain the withdrawal of (i) any order suspending the effectiveness
     of any Registration Statement, or (ii) any suspension of the qualification
     (or exemption from qualification) of any of the Registrable Securities for
     sale in any jurisdiction, as soon as possible.

                      (e) If requested by an Investor, provide such Investor,
     without charge, at least one conformed copy of each Registration Statement
     and each amendment thereto, including financial statements and schedules,
     and all exhibits to the extent requested by such Person (including those
     previously furnished or incorporated by reference) promptly after the
     filing of such documents with the SEC.

                      (f) Promptly deliver to each Investor, without charge, as
     many copies of the Prospectus or Prospectuses (including each form of
     prospectus) and each amendment or supplement thereto as such Persons may
     reasonably request. The Company hereby consents to the use of such
     Prospectus and each amendment or supplement thereto by each of the selling
     Investors in connection with the offering and sale of the Registrable
     Securities covered by such Prospectus and any amendment or supplement
     thereto to the extent permitted by federal and state securities laws and
     regulations.

                      (g) (i) In the time and manner required by each Trading
     Market, prepare and file with such Trading Market an additional shares
     listing application covering all of the Registrable Securities; (ii) take
     all steps necessary to cause such Common Shares to be approved for listing
     on each Trading Market as soon as possible thereafter; (iii) provide to
     Investor Counsel evidence of such listing; and (iv) except as a result of
     the Excluded Events, during the Effectiveness Period, maintain the listing
     of such Common Shares on each such Trading Market or another Eligible
     Market.

                      (h) Prior to any public offering of Registrable
     Securities, use its reasonable Best Efforts to register or qualify or
     cooperate with the selling Investors in connection with the registration or
     qualification (or exemption from such registration or qualification) of


                                       27




<PAGE>

     such Registrable Securities for offer and sale under the securities or Blue
     Sky laws of such jurisdictions within the United States as any Investor
     requests in writing, to keep each such registration or qualification (or
     exemption therefrom) effective for so long as required, but not to exceed
     the duration of the Effectiveness Period, and to do any and all other acts
     or things reasonably necessary or advisable to enable the disposition in
     such jurisdictions of the Registrable Securities covered by a Registration
     Statement; PROVIDED, HOWEVER, that the Company shall not be obligated to
     file any general consent to service of process or to qualify as a foreign
     corporation or as a dealer in securities in any jurisdiction in which it is
     not so qualified or to subject itself to taxation in respect of doing
     business in any jurisdiction in which it is not otherwise so subject.

                      (i) Cooperate with the Investors to facilitate the timely
     preparation and delivery of certificates representing Registrable
     Securities to be delivered to a transferee pursuant to a Registration
     Statement, which certificates shall be free, to the extent permitted by
     this Agreement and under law, of all restrictive legends, and to enable
     such Registrable Securities to be in such denominations and registered in
     such names as any such Investors may reasonably request.

                      (j) Upon the occurrence of any event described in SECTION
     6.2(C)(VII), as promptly as reasonably possible, prepare a supplement or
     amendment, including a post-effective amendment, to the Registration
     Statement or a supplement to the related Prospectus or any document
     incorporated or deemed to be incorporated therein by reference, and file
     any other required document so that, as thereafter delivered, neither the
     Registration Statement nor such Prospectus will 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.

                      (k) Cooperate with any reasonable due diligence
     investigation undertaken by the Investors in connection with the sale of
     Registrable Securities, including, without limitation, by making available
     documents and information; provided that the Company will not deliver or
     make available to any Investor material, nonpublic information unless such
     Investor requests in advance in writing to receive material, nonpublic
     information and agrees to keep such information confidential.

                      (l) Comply with all rules and regulations of the SEC
     applicable to the registration of the Securities.

                      (m) It shall be a condition precedent to the obligations
     of the Company to complete the registration pursuant to this Agreement with
     respect to the Registrable Securities of any particular Investor or to make
     any Event Payments set forth in Section 6.1(c) to such Investor that such
     Investor furnish to the Company the information specified in Exhibits B-1,
     B-2 and B-3 hereto and such other information regarding itself, the
     Registrable Securities and other shares of Common Stock held by it and the
     intended method of disposition of the Registrable Securities held by it (if
     different from the Plan of Distribution set forth on Exhibit D hereto) as
     shall be reasonably required to effect and/or maintain the registration of
     such Registrable Securities and shall complete and execute such documents
     in connection with such registration as the Company may reasonably request.


                                       28




<PAGE>

                      (n) The Company shall comply with all applicable rules and
     regulations of the SEC under the Securities Act and the Exchange Act,
     including, without limitation, Rule 172 under the Securities Act, file any
     final Prospectus, including any supplement or amendment thereof, with the
     SEC pursuant to Rule 424 under the Securities Act, promptly inform the
     Holders in writing if, at any time during the Effectiveness Period, the
     Company does not satisfy the conditions specified in Rule 172 and, as a
     result thereof, the Holders are required to make available a Prospectus in
     connection with any disposition of Registrable Securities and take such
     other actions as may be reasonably necessary to facilitate the registration
     of the Registrable Securities hereunder.

         6.3 REGISTRATION EXPENSES. The Company shall pay all fees and expenses
incident to the performance of or compliance with Article VI of this Agreement
by the Company, including without limitation (a) all registration and filing
fees and expenses, including without limitation those related to filings with
the SEC, any Trading Market and in connection with applicable state securities
or Blue Sky laws, (b) printing expenses (including without limitation expenses
of printing certificates for Registrable Securities), (c) messenger, telephone
and delivery expenses, (d) fees and disbursements of counsel for the Company,
(e) fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement, and
(f) all listing fees to be paid by the Company to the Trading Market.

         6.4  INDEMNIFICATION

                      (a) INDEMNIFICATION BY THE COMPANY. The Company shall,
     notwithstanding any termination of this Agreement, indemnify and hold
     harmless each Investor, the officers, directors, partners, members, agents
     and employees of each of them, each Person who controls any such Investor
     (within the meaning of Section 15 of the Securities Act or Section 20 of
     the Exchange Act) and the officers, directors, partners, members, agents
     and employees of each such controlling Person, to the fullest extent
     permitted by applicable law, from and against any and all Losses, as
     incurred, arising out of or relating to (i) any misrepresentation or breach
     of any representation or warranty made by the Company in the Transaction
     Documents or any other certificate, instrument or document contemplated
     hereby or thereby, (ii) any breach of any covenant, agreement or obligation
     of the Company contained in the Transaction Documents or any other
     certificate, instrument or document contemplated hereby or thereby, (iii)
     any cause of action, suit or claim brought or made against such Indemnified
     Party (as defined in Section 6.4(c) below) by a third party (including for
     these purposes a derivative action brought on behalf of the Company),
     arising out of or resulting from (x) execution, delivery, performance or
     enforcement of the Transaction Documents or any other certificate,
     instrument or document contemplated hereby or thereby, (y) any transaction
     financed or to be financed in whole or in part, directly or indirectly,
     with the proceeds of the issuance of the Securities, or (z) the status of
     Indemnified Party as holder of the Securities or (iv) any untrue or alleged
     untrue statement of a material fact contained in the Registration
     Statement, any Prospectus or any form of Company prospectus or in any


                                       29




<PAGE>

     amendment or supplement thereto or in any Company preliminary prospectus,
     or arising out of or relating to any omission or alleged omission of a
     material fact required to be stated therein or necessary to make the
     statements therein (in the case of any Prospectus or form of prospectus or
     supplement thereto, in the light of the circumstances under which they were
     made) not misleading, except to the extent, but only to the extent, that
     (A) such untrue statements, alleged untrue statements, omissions or alleged
     omissions are based solely upon information regarding such Investor
     furnished in writing to the Company by such Investor for use therein, or to
     the extent that such information relates to such Investor or such
     Investor's proposed method of distribution of Registrable Securities and
     was reviewed and expressly approved by such Investor expressly for use in
     the Registration Statement, or (B) with respect to any prospectus, if the
     untrue statement or omission of material fact contained in such prospectus
     was corrected on a timely basis in the prospectus, as then amended or
     supplemented, if such corrected prospectus was timely made available by the
     Company to the Holder, and the Holder seeking indemnity hereunder was
     advised in writing not to use the incorrect prospectus prior to the use
     giving rise to Losses.

                      (b) INDEMNIFICATION BY INVESTORS. Each Investor shall,
     severally and not jointly, indemnify and hold harmless the Company, its
     directors, officers, agents and employees, each Person who controls the
     Company (within the meaning of SECTION 15 of the Securities Act and SECTION
     20 of the Exchange Act), and the directors, officers, agents or employees
     of such controlling Persons, to the fullest extent permitted by applicable
     law, from and against all Losses (as determined by a court of competent
     jurisdiction in a final judgment not subject to appeal or review) arising
     solely out of any untrue statement of a material fact contained in the
     Registration Statement, any Prospectus, or any form of prospectus, or in
     any amendment or supplement thereto, or arising out of or relating to any
     omission of a material fact required to be stated therein or necessary to
     make the statements therein (in the case of any Prospectus or form of
     prospectus or supplement thereto, in the light of the circumstances under
     which they were made) not misleading, but only to the extent that such
     untrue statement or omission is contained in any information so furnished
     by such Investor in writing to the Company specifically for inclusion in
     such Registration Statement or such Prospectus or to the extent that such
     untrue statements or omissions are based solely upon information regarding
     such Investor furnished to the Company by such Investor in writing
     expressly for use therein, or to the extent that such information relates
     to such Investor or such Investor's proposed method of distribution of
     Registrable Securities and was reviewed and expressly approved by such
     Investor expressly for use in the Registration Statement (it being
     understood that the information provided by the Investor to the Company in
     Exhibits B-1, B-2 and B-3 and the Plan of Distribution set forth on Exhibit
     D, as the same may be modified by such Investor and other information
     provided by the Investor to the Company in or pursuant to the Transaction
     Documents constitutes information reviewed and expressly approved by such
     Investor in writing expressly for use in the Registration Statement), such
     Prospectus or such form of Prospectus or in any amendment or supplement
     thereto. In no event shall the liability of any selling Investor hereunder
     be greater in amount than the dollar amount of the net proceeds received by
     such Investor upon the sale of the Registrable Securities giving rise to
     such indemnification obligation.


                                       30




<PAGE>

                      (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any
     Proceeding shall be brought or asserted against any Person entitled to
     indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party shall
     promptly notify the Person from whom indemnity is sought (the "INDEMNIFYING
     PARTY") in writing, and the Indemnifying Party shall assume the defense
     thereof, including the employment of counsel reasonably satisfactory to the
     Indemnified Party and the payment of all fees and expenses incurred in
     connection with defense thereof; provided, that the failure of any
     Indemnified Party to give such notice shall not relieve the Indemnifying
     Party of its obligations or liabilities pursuant to this Agreement, except
     (and only) to the extent that it shall be finally determined by a court of
     competent jurisdiction (which determination is not subject to appeal or
     further review) that such failure shall have proximately and materially
     adversely prejudiced the Indemnifying Party.

         An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (i) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (iii) the
named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (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 thereof and the reasonable fees and expenses of
separate counsel shall be at the expense of the Indemnifying Party). It being
understood, however, that the Indemnifying Party shall not, in connection with
any one such Proceeding (including separate Proceedings that have been or will
be consolidated before a single judge) be liable for the fees and expenses of
more than one separate firm of attorneys at any time for all Indemnified
Parties, which firm shall be appointed by a majority of the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

         All reasonable fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 20 Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).


                                       31




<PAGE>

                      (d) CONTRIBUTION. If a claim for indemnification under
     SECTION 6.4(A) or (B) is unavailable to an Indemnified Party (by reason of
     public policy or otherwise), then each Indemnifying Party, in lieu of
     indemnifying such Indemnified Party, shall contribute to the amount paid or
     payable by such Indemnified Party as a result of such Losses, in such
     proportion as is appropriate to reflect the relative fault of the
     Indemnifying Party and Indemnified Party in connection with the actions,
     statements or omissions that resulted in such Losses as well as any other
     relevant equitable considerations. The relative fault of such Indemnifying
     Party and Indemnified Party shall be determined by reference to, among
     other things, whether any action in question, including any untrue or
     alleged untrue statement of a material fact or omission or alleged omission
     of a material fact, has been taken or made by, or relates to information
     supplied by, such Indemnifying Party or Indemnified Party, and the parties'
     relative intent, knowledge, access to information and opportunity to
     correct or prevent such action, statement or omission. The amount paid or
     payable by a party as a result of any Losses shall be deemed to include,
     subject to the limitations set forth in SECTION 6.4(C), any reasonable
     attorneys' or other reasonable fees or expenses incurred by such party in
     connection with any Proceeding to the extent such party would have been
     indemnified for such fees or expenses if the indemnification provided for
     in this Section was available to such party in accordance with its terms.

         The parties hereto agree that it would not be just and equitable if
contribution pursuant to this SECTION 6.4(D) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this SECTION 6.4(D), no Investor shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Investor from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Investor has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. 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.

         The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

         6.5 DISPOSITIONS. Each Investor agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement and shall sell its Registrable Securities in accordance with the Plan
of Distribution set forth in the Prospectus. Each Investor further agrees that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in SECTIONS 6.2(C)(V), (VI) or (VII), such Investor will
discontinue disposition of such Registrable Securities under the Registration
Statement until such Investor is advised in writing by the Company that the use
of the Prospectus, or amended Prospectus, as necessary, may be used. The Company
may provide appropriate stop orders to enforce the provisions of this paragraph.


                                       32




<PAGE>

         6.6 NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any of its
security holders (other than the Investors in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities.

         6.7 PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the SEC a registration statement relating to an offering for its own account or
the account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Investor not then eligible to sell
all of their Registrable Securities under Rule 144 in a three-month period,
written notice of such determination and if, within ten days after receipt of
such notice, any such Investor shall so request in writing, the Company shall
include in such registration statement all or any part of such Registrable
Securities such Investor requests to be registered. Notwithstanding the
foregoing, in the event that, in connection with any underwritten public
offering, the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder as the underwriter shall permit;
PROVIDED, HOWEVER, that (i) the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not contractually entitled to inclusion of such securities
in such Registration Statement or are not contractually entitled to pro rata
inclusion with the Registrable Securities and (ii) after giving effect to the
immediately preceding proviso, any such exclusion of Registrable Securities
shall be made pro rata among the Investors seeking to include Registrable
Securities and the holders of other securities having the contractual right to
inclusion of their securities in such Registration Statement by reason of demand
registration rights, in proportion to the number of Registrable Securities or
other securities, as applicable, sought to be included by each such Investor or
other holder. If an offering in connection with which an Investor is entitled to
registration under this Section 6.7 is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering and shall enter into an underwriting agreement in a form and substance
reasonably satisfactory to the Company and the underwriter or underwriters. Upon
the effectiveness the registration statement for which piggy-back registration
has been provided in this Section 6.7, any Event Payments payable to an Investor
whose Securities are included in such registration statement shall terminate.


                                       33




<PAGE>

                                   ARTICLE VII
                                  MISCELLANEOUS

         7.1 TERMINATION. This Agreement may be terminated by the Company or any
Investor, by written notice to the other parties, if the Closing has not been
consummated by the third Business Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).

         7.2 FEES AND EXPENSES. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
sale and issuance of their applicable Securities.

         7.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Investors such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents.

         7.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address specified in this Section prior to 6:30 p.m.
(New York City time) on a Trading Day, (b) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile or
email at the facsimile number or email address specified in this Section on a
day that is not a Trading Day or later than 6:30 p.m. (New York City time) on
any Trading Day, (c) the Trading Day following the date of deposit with a
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses, facsimile
numbers and email addresses for such notices and communications are those set
forth on the signature pages hereof, or such other address or facsimile number
as may be designated in writing hereafter, in the same manner, by any such
Person.

         7.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Investors or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Investors under ARTICLE VI may be given by Investors holding at least a majority
of the Registrable Securities to which such waiver or consent relates.


                                       34




<PAGE>

         7.6 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

         7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign its
rights under this Agreement to any Person to whom such Investor assigns or
transfers any Securities, provided (i) such transferor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company after such assignment, (ii) the Company is furnished
with written notice of (x) the name and address of such transferee or assignee
and (y) the Registrable Securities with respect to which such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment, the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (iv) such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the "Investors"
and (v) such transfer shall have been made in accordance with the applicable
requirements of this Agreement and with all laws applicable thereto.

         7.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Indemnified Party is an intended third
party beneficiary of SECTION 6.4 and (in each case) may enforce the provisions
of such Sections directly against the parties with obligations thereunder.

         7.9 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. THE CORPORATE LAWS OF
THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF
THE COMPANY AND ITS STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY
AND INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN
FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR
HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE
TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT


                                       35




<PAGE>

SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND INVESTORS
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

         7.10 SURVIVAL. The representations and warranties, agreements and
covenants contained herein shall survive the Closing.

         7.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or email attachment, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile
or email-attached signature page were an original thereof.

         7.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

         7.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option owed to such Investor by the Company under a Transaction Document and
the Company does not timely perform its related obligations within the periods
therein provided, then, prior to the performance by the Company of the Company's
related obligation, such Investor may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.

         7.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and the execution by the holder
thereof of a customary lost certificate affidavit of that fact and an agreement
to indemnify and hold harmless the Company for any losses in connection


                                       36




<PAGE>

therewith. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.

         7.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to seek specific performance under
the Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation (other than in
connection with any action for temporary restraining order) the defense that a
remedy at law would be adequate.

         7.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Investor hereunder or any Investor enforces or exercises its
rights hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company
by a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

         7.17 ADJUSTMENTS IN SHARE NUMBERS AND PRICES. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof and prior to
the Closing, each reference in any Transaction Document to a number of shares or
a price per share shall be amended to appropriately account for such event.

         7.18 INDEPENDENT NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to this Agreement has been made by such Investor
independently of any other Investor and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Investor or by any agent or employee of any other Investor, and no
Investor or any of its agents or employees shall have any liability to any other
Investor (or any other person) relating to or arising from any such information,
materials, statements or opinions. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no other
Investor will be acting as agent of such Investor in connection with monitoring


                                       37




<PAGE>

its investment hereunder. Each Investor shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Investor to be joined as an additional party in
any proceeding for such purpose.

                           [SIGNATURE PAGES TO FOLLOW]


                                       38




<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                                         PACIFIC ETHANOL, INC.



                                         By: /s/ Neil M. Koehler
                                         Name: Neil M. Koehler
                                         Title: CEO

                                         Address for Notice:



                                         Facsimile No.:
                                         Telephone No.:
                                         Attn:

                       With a copy to:
                       Facsimile:
                       Telephone:
                       Attn:


                                       39




<PAGE>

                             Investor Signature Page
                             -----------------------

         By its execution and delivery of this signature page, the undersigned
Investor hereby joins in and agrees to be bound by the terms and conditions of
the Securities Purchase Agreement dated as of May 25, 2006 (the "Purchase
Agreement") by and among Pacific Ethanol, Inc. and the Investors (as defined
therein), as to the number of shares of Common Stock and Warrants set forth
below, and authorizes this signature page to be attached to the Purchase
Agreement or counterparts thereof.

                                         Name of Investor:

                                         _______________________________________



                                         By: ___________________________________
                                             Name:
                                             Title:


                                         Address:_______________________________

                                         _______________________________________

                                         _______________________________________

                                         Telephone No.: ________________________

                                         Facsimile No.: ________________________

                                         Email Address: ________________________

                                         Number of Shares: _____________________

                                         Number of Warrants: ___________________

                                         Aggregate Purchase Price: $____________





<PAGE>

         Exhibits:

         A        Schedule of Investors
         B        Instruction Sheet for Investors
         C        Opinion of Company Corporate Counsel
         D        Plan of Distribution
         E        Company Transfer Agent Instructions
         F        Form of Warrant






<PAGE>

<TABLE>
                                                         EXHIBIT A

                                                   SCHEDULE OF INVESTORS
                                                   ---------------------


                                                          Common                          Warrant
                     Investor                             Shares          Warrants         Shares        Purchase Price
---------------------------------------------------  ----------------  -------------  ---------------  -------------------
<S>                                                     <C>              <C>             <C>            <C>
D.E. Shaw Valence Portfolios, L.L.C.                      800,000          400,000         400,000      $   21,104,000.00
Capital Ventures International                            379,075          189,538         189,538      $    9,999,998.50
Ardsley Offshore Fund, Ltd.                               322,214          161,107         161,107      $    8,500,005.32
Crestview Capital Master, LLC                             300,000          150,000         150,000      $    7,914,000.00
QVT Fund LP                                               284,306          142,153         142,153      $    7,499,992.28
Ardsley Partners Fund II, L.P.                            265,352          132,676         132,676      $    6,999,985.76
Evolution Master Fund Ltd. SPC, Segregated
   Portfolio M                                            227,500          113,750         113,750      $    6,001,450.00
Hudson Bay Fund, LP                                       199,014           99,507          99,507      $    5,249,989.32
Credit Suisse Trust-Small Cap Growth Portfolio            196,398           98,199          98,199      $    5,180,979.24
Highbridge International LLC                              189,537           94,769          94,769      $    4,999,986.06
Iroquois Master Fund, Ltd.                                189,537           94,769          94,769      $    4,999,986.06
Cranshire Capital, L.P.                                   189,537           94,769          94,769      $    4,999,986.06
Ardsley Partners Institutional Fund, L.P.                 163,002           81,501          81,501      $    4,299,992.76
Radcliff SPC, Ltd. for and on behalf of the Class
   A Convertible Crossover Segregated Portfolio           150,039           75,020          75,020      $    3,958,028.82
Shepherd Investments International, Ltd.                  150,000           75,000          75,000      $    3,957,000.00
Enable Growth Partners LP                                 113,723           56,862          56,862      $    3,000,012.74
Telluride Capital Master Fund Ltd.                        110,000           55,000          55,000      $    2,901,800.00
Rockmore Investment Master Fund Ltd.                      110,000           55,000          55,000      $    2,901,800.00
Portside Growth and Opportunity Fund                      100,000           50,000          50,000      $    2,638,000.00
SF Capital Partners Ltd.                                  100,000           50,000          50,000      $    2,638,000.00
JMG Capital Partners, LP                                  100,000           50,000          50,000      $    2,638,000.00
JMG Triton Offshore Fund, Ltd.                            100,000           50,000          50,000      $    2,638,000.00
UBS O'Connor LLC fbo O'Connor PIPES Corporate
   Strategies Master Limited                               75,000           37,500          37,500      $    1,978,500.00
Nite Capital LP                                            75,000           37,500          37,500      $    1,978,500.00
SDS Capital Group SPC, Ltd.                                75,000           37,500          37,500      $    1,978,500.00
Gryphon Master Fund, L.P.                                  73,333           36,667          36,667      $    1,934,524.54
Kamunting Street Master Fund, Ltd.                         55,000           27,500          27,500      $    1,450,900.00
Precept Capital Master Fund, G.P.                          55,000           27,500          27,500      $    1,450,900.00
Stark Trading                                              50,000           25,000          25,000      $    1,319,000.00
CAMOFI Master LDC                                          45,000           22,500          22,500      $    1,187,100.00
Cordillera Fund, L.P.                                      37,907           18,954          18,954      $      999,986.66
GSSF Master Fund, LP                                       36,667           18,334          18,334      $      967,275.46
UBS O'Connor LLC fbo UBS Global Equity Arbitrage
   Master Limited                                          25,000           12,500          12,500      $      659,500.00
Credit Suisse Global Small Cap Fund, Inc.                  23,000           11,500          11,500      $      606,740.00
Credit Suisse Trust-Global Small Cap Portfolio             23,000           11,500          11,500      $      606,740.00
Enable Opportunity Partners LP                             22,744           11,372          11,372      $      599,986.72
Ridgecrest Partners QP, L.P.                               20,100           10,050          10,050      $      530,238.00
Civic Capital Fund I                                       18,953            9,477           9,477      $      499,980.14
Pierce Diversified Strategy Master Fund LLC, Ena           15,163            7,582           7,582      $      399,999.94
Marion Lynton                                               7,582            3,791           3,791      $      200,013.16
Advantage Advisors Catalyst Partners L.P.                   7,000            3,500           3,500      $      184,660.00
Advantage Advisors Catalyst International Ltd.              6,800            3,400           3,400      $      179,384.00
Ridgecrest Partners Ltd.                                    5,100            2,550           2,550      $      134,538.00
Credit Suisse Small Cap Growth Fund, Inc.                   4,000            2,000           2,000      $      105,520.00
Ridgecrest Partners L.P.                                    1,000              500             500      $       26,380.00

   TOTAL                                                5,496,583        2,748,297       2,748,297      $  144,999,859.54
</TABLE>





<PAGE>

                                    EXHIBIT B

                         INSTRUCTION SHEET FOR INVESTOR
                         ------------------------------

    (to be read in conjunction with the entire Securities Purchase Agreement)

A.       Complete the Following Items in the Securities Purchase Agreement:
         ------------------------------------------------------------------

         1.       Complete and execute the Investor Signature Page. The
                  Agreement must be executed by an individual authorized to bind
                  the Investor.

         2.       Exhibit B-1 - Stock Certificate Questionnaire:

         Provide the Information Requested by the Stock Certificate
         ----------------------------------------------------------
         Questionnaire;
         --------------

         3. Exhibit B-2 - Registration Statement Questionnaire:

         Provide the Information Requested by the Registration Statement
         ---------------------------------------------------------------
         Questionnaire.
         --------------

         4.       Exhibit B-3 /B-4 - Investor Certificate:

         Provide the information requested by the Certificate for Individual
         Investors (B-3) or the Certificate for Corporate, Partnership, Trust,
         Foundation and Joint Investors (B-4), as applicable.

         5.       Return, via facsimile, the signed Securities Purchase
                  Agreement including the properly completed Exhibits B-1
                  through B-4, to:

                                    Facsimile:
                                    Telephone:
                                    Attn:

         6.       After completing instruction number five (5) above, deliver
                  the original signed Securities Purchase Agreement including
                  the properly completed Exhibits B-1 through B-4 to:

                                    Facsimile:
                                    Telephone:
                                    Attn:

B.       Instructions regarding the wire transfer of funds for the purchase of
         the Shares will be telecopied to the Investor by the Company at a later
         date.

C.       Upon the resale of any Shares by the Investor after the Registration
         Statement covering any Shares is effective, as described in the
         Securities Purchase Agreement, the Investor must send a letter in the
         form of Exhibit D to the Company and the Company's transfer agent so
         that the Shares may be properly transferred.





<PAGE>

                                   EXHIBIT B-1

                              PACIFIC ETHANOL, INC.
                              ---------------------

                         STOCK CERTIFICATE QUESTIONNAIRE
                         -------------------------------



         Please provide us with the following information:

1.       The exact name that the Securities are to be
         registered in (this is the name that will
         appear on the stock certificate(s)). You may
         use a nominee name if appropriate:           __________________________


2.       The relationship between the Investor of the
         Securities and the Registered Holder listed
         in response to item 1 above:                 __________________________


3.       The mailing address, telephone and telecopy
         number and email address of the Registered
         Holder listed in response to item 1 above:   __________________________

                                                      __________________________

                                                      __________________________

                                                      __________________________

                                                      __________________________


4.       The Tax Identification Number of the
         Registered Holder listed in response to item
         1 above:                                     __________________________





<PAGE>

                                   EXHIBIT B-2

                              PACIFIC ETHANOL, INC.
                              ---------------------

                      REGISTRATION STATEMENT QUESTIONNAIRE
                      ------------------------------------


         In connection with the Registration Statement, please provide us with
the following information regarding the Investor.


1. Please state your organization's name exactly as it should appear in the
Registration Statement:

         _______________________________________________________________________


         Except as set forth below, your organization does not hold any equity
securities of the Company on behalf of another person or entity.

         State any exceptions here:


         _______________________________________________________________________


2. Address of your organization:

                  ______________________________________________________

                  ______________________________________________________

                  Telephone:  ____________________________

                  Fax:  __________________________________

                  Contact Person:  _______________________


3. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates?
(Include any relationships involving you or your affiliates, officers,
directors, or principal equity holders (5% or more) that has held any position
or office or has had any other material relationship with the Company (or its
predecessors or affiliates) during the past three years.)


         _______   Yes                       _______   No

         If yes, please indicate the nature of any such relationship below:





<PAGE>

4. Are you the beneficial owner of any other securities of the Company? (Include
any equity securities that you beneficially own or have a right to acquire
within 60 days after the date hereof, and as to which you have sole voting
power, shared voting power, sole investment power or shared investment power.)


         _______   Yes                       _______   No

         If yes, please describe the nature and amount of such ownership as of a
recent date.


5. Except as set forth below, you wish that all the shares of the Company's
common stock beneficially owned by you or that you have the right to acquire
from the Company be offered for your account in the Registration Statement.

                  State any exceptions here:





6. Have you made or are you aware of any arrangements relating to the
distribution of the shares of the Company pursuant to the Registration
Statement?

         _______   Yes                       _______   No

         If yes, please describe the nature and amount of such arrangements.



                                      -2-




<PAGE>

     7.  NASD Matters

         (a) State below whether (i) you or any ASSOCIATE or AFFILIATE of yours
are a MEMBER of the NASD, a CONTROLLING shareholder of an NASD MEMBER, a PERSON
ASSOCiATED WITH A MEMBER, a direct or indirect AFFILIATE of a MEMBER, or an
UNDERWRITER OR RELATED PERSON with respect to the proposed offering; (ii) you or
any ASSOCIATE or AFFILIATE of yours owns any stock or other securities of any
NASD MEMBER not purchased in the open market; or (iii) you or any ASSOCIATE or
AFFILIATE of yours has made any outstanding subordinated loans to any NASD
MEMBER. If you are a general or limited partnership, a no answer asserts that no
such relationship exists for you as well as for each of your general or limited
partners.


          Yes: __________             No: __________


         If "yes," please identify the NASD MEMBER and describe your
         relationship, including, in the case of a general or limited partner,
         the name of the partner:







         If you answer "no" to Question 7(a), you need not respond to Question
7(b).



                      (b) State below whether you or any ASSOCIATE or AFFILIATE
     of yours has been an underwriter, or a CONTROLLING person or member of any
     investment banking or brokerage firm which has been or might be an
     underwriter for securities of the Corporation or any AFFILIATE thereof
     including, but not limited to, the common stock now being registered.

          Yes: __________             No: __________

         If "yes," please identify the NASD MEMBER and describe your
         relationship, including, in the case of a general or limited partner,
         the name of the partner.






                                      -3-




<PAGE>

                                 ACKNOWLEDGEMENT
                                 ---------------

         The undersigned hereby agrees to notify the Company promptly of any
changes in the foregoing information which should be made as a result of any
developments, including the passage of time. The undersigned also agrees to
provide the Company and the Company's counsel any and all such further
information regarding the undersigned promptly upon request in connection with
the preparation, filing, amending, and supplementing of the Registration
Statement (or any prospectus contained therein). The undersigned hereby consents
to the use of all such information in the Registration Statement.

         The undersigned understands and acknowledges that the Company will rely
on the information set forth herein for purposes of the preparation and filing
of the Registration Statement.

         The undersigned understands that the undersigned may be subject to
serious civil and criminal liabilities if the Registration Statement, when it
becomes effective, either contains an untrue statement of a material fact or
omits to state a material fact required to be stated in the Registration
Statement or necessary to make the statements in the Registration Statement not
misleading. The undersigned represents and warrants that all information it
provides to the Company and its counsel is currently accurate and complete and
will be accurate and complete at the time the Registration Statement becomes
effective and at all times subsequent thereto, and agrees during the
Effectiveness Period and any additional period in which the undersigned is
making sales of Shares under and pursuant to the Registration Statement, and
agrees during such periods to notify the Company immediately of any misstatement
of a material fact in the Registration Statement, and of the omission of any
material fact necessary to make the statements contained therein not misleading.



         Dated:  __________
                                               _________________________________
                                               Name

                                               _________________________________
                                               Signature

                                               _________________________________
                                               Name and Title of Signatory


                                      -4-




<PAGE>

                                   EXHIBIT B-3

                              PACIFIC ETHANOL, INC.
                              ---------------------

       CERTIFICATE FOR CORPORATE, PARTNERSHIP, LIMITED LIABILITY COMPANY,
                      TRUST, FOUNDATION AND JOINT INVESTORS
                      -------------------------------------

         If the investor is a corporation, partnership, limited liability
company, trust, pension plan, foundation, joint Investor (other than a married
couple) or other entity, an authorized officer, partner, or trustee must
complete, date and sign this Certificate.


                                   CERTIFICATE
                                   -----------

         The undersigned certifies that the representations and responses below
are true and accurate:

         (a) The investor has been duly formed and is validly existing and has
full power and authority to invest in the Company. The person signing on behalf
of the undersigned has the authority to execute and deliver the Securities
Purchase Agreement on behalf of the Investor and to take other actions with
respect thereto.

         (b) Indicate the form of entity of the undersigned:

                  ____     Limited Partnership

                  ____     General Partnership

                  ____     Limited Liability Company

                  ____     Corporation

                  ____     Revocable Trust (identify each grantor and indicate
under what circumstances the trust is revocable by the grantor): _______________
________________________________________________________________________________
 (Continue on a separate piece of paper, if necessary.)

                  ____     Other type of Trust (indicate type of trust and, for
trusts other than pension trusts, name the grantors and beneficiaries): ________
________________________________________________________________________________
(Continue on a separate piece of paper, if necessary.)

                  ____     Other form of organization (indicate form of
organization (__________________________________________________________________
______________________________________________________________________________).


                                      -5-




<PAGE>

         (c) Indicate the approximate date the undersigned entity was formed: .

         (d) In order for the Company to offer and sell the Units in conformance
with state and federal securities laws, the following information must be
obtained regarding your investor status. Please INITIAL EACH CATEGORY applicable
to you as an investor in the Company.

         ___      1. A bank as defined in Section 3(a)(2) of the Securities Act,
                  or any savings and loan association or other institution as
                  defined in Section 3(a)(5)(A) of the Securities Act whether
                  acting in its individual or fiduciary capacity;

         ___      2. A broker or dealer registered  pursuant to Section 15 of
                  the Securities  Exchange Act of 1934;

         ___      3. An insurance company as defined in Section 2(13) of the
                  Securities Act;

         ___      4. An investment company registered under the Investment
                  Company Act of 1940 or a business development company as
                  defined in Section  2(a)(48) of that Act;

         ___      5. A Small Business Investment Company licensed by the U.S.
                  Small Business Administration under Section 301(c) or (d) of
                  the Small Business Investment Act of 1958;

         ___      6. A plan established and maintained by a state, its political
                  subdivisions, or any agency or instrumentality of a state or
                  its political subdivisions, for the benefit of its employees,
                  if such plan has total assets in excess of $5,000,000;

         ___      7. An employee benefit plan within the meaning of the Employee
                  Retirement Income Security Act of 1974, if the investment
                  decision is made by a plan fiduciary, as defined in Section
                  3(21) of such Act, which is either a bank, savings and loan
                  association, insurance company, or registered investment
                  advisor, or if the employee benefit plan has total assets in
                  excess of $5,000,000 or, if a self-directed plan, with
                  investment decisions made solely by persons that are
                  accredited investors;

         ___      8. A private business development company as defined in
                  Section 202(a)(22) of the Investment Advisers Act of 1940;

         ___      9. Any partnership or corporation or any organization
                  described in Section 501(c)(3) of the Internal Revenue Code or
                  similar business trust, not formed for the specific purpose of
                  acquiring the Shares, with total assets in excess of
                  $5,000,000;

         ___      10. A trust, with total assets in excess of $5,000,000, not
                  formed for the specific purpose of acquiring the Shares, whose
                  purchase is directed by a sophisticated person as described in
                  Rule 506(b)(2)(ii) of the Exchange Act;


                                      -6-




<PAGE>

         ___      11. An entity in which all of the equity owners qualify under
                  any of the above subparagraphs. If the undersigned belongs to
                  this investor category only, list the equity owners of the
                  undersigned, and the investor category which each such equity
                  owner satisfies:______________________________________________

                         _______________________________________________________
                         (Continue on a separate piece of paper, if necessary.)

         Please set forth in the space provided below the (i) states, if any, in
the U.S. in which you maintained your principal office during the past two years
and the dates during which you maintained your office in each state, (ii)
state(s), if any, in which you are incorporated or otherwise organized and (iii)
state(s), if any, in which you pay income taxes.

                         _______________________________________________________

                         _______________________________________________________

                         _______________________________________________________



Dated:__________________________, 2006


______________________________________
Print Name of Investor


______________________________________
Name:
Title:
(Signature and title of authorized officer, partner or trustee)


                                      -7-




<PAGE>

                        SECURITIES DELIVERY INSTRUCTIONS
                        --------------------------------



Please instruct us as to where you would like the Securities delivered to at
Closing:



Name: ____________________________________________________________________

Company: _________________________________________________________________

Address: _________________________________________________________________

         _________________________________________________________________

Telephone: _______________________________________________________________


Other Special Instructions: ______________________________________________

__________________________________________________________________________


                                      -8-




<PAGE>

                                    EXHIBIT C

                      OPINION OF COMPANY CORPORATE COUNSEL
                      ------------------------------------

Capitalized terms not defined herein shall have the meaning given them in the
Agreement.

1.       The Company is duly incorporated, validly existing and in good standing
         under the laws of the State of Delaware, with all the requisite power
         and authority to own, lease and operate its properties and to carry on
         its business as now being conducted.

2.       The Company has all requisite power and authority to execute, deliver,
         and perform its obligations under the Agreement. The execution and
         delivery of the Agreement by the Company and the performance of each of
         its obligations thereunder have been duly and validly authorized by all
         necessary corporate action and no further consent or authorization of
         the Company, its Board of Directors or its stockholders is required.

3.       Neither the execution, delivery or performance of the Agreement by the
         Company nor the consummation of the transactions contemplated thereby
         will (i) conflict with or violate the Company's Certificate of
         Incorporation or Bylaws, as each are currently in effect, (ii) conflict
         with or violate any law applicable to the Company, or by which any
         property or asset of any of the Company is bound or affected or (iii)
         result in a default under the terms of any agreement to which the
         Company is a party and which the Company has attached as an exhibit to
         its reports filed with the SEC under the Exchange Act.

4.       No approvals or authorizations by, or filings or qualifications with,
         any governmental authority or body are required in connection with the
         execution and delivery of the Agreement or any other agreements or
         documents executed and delivered pursuant thereto by the Company,
         except such as have been duly obtained or made.

5.       The shares of Common Stock issued by the Company under the Agreement
         (the "Shares") and the shares of Common Stock to be issued upon
         exercise of the Warrants issued under the Agreement (the "Warrant
         Shares") shall, when issued pursuant to the terms and conditions
         specified in the Agreement, and when paid for in accordance with their
         terms, be duly authorized, validly issued, fully paid and
         non-assessable shares. The Warrants shall, when issued pursuant to the
         terms and conditions specified in the Agreement, be duly authorized,
         validly issued and non-assessable and the Warrant Shares have been duly
         reserved for issuance by the Company.

6.       The Agreement and the Warrant have been duly executed and delivered by
         the Company and each constitutes a legal, valid and binding agreement
         of the Company enforceable against the Company in accordance with their
         respective terms, except as the enforceability thereof may be limited
         by bankruptcy, insolvency, reorganization, moratorium, or other similar





<PAGE>

         laws affecting the enforcement of creditors' rights generally and other
         general principles of equity and subject to other standard exceptions
         and qualifications. To our knowledge, neither the Shares nor the
         Warrant Shares are subject to any preemptive rights under the Company's
         Certificate of Incorporation or Bylaws.


7.       To our knowledge, there is no action, suit, claim, investigation or
         proceeding pending or threatened against the Company which questions
         the validity of the Agreement or the transactions contemplated thereby
         or any action taken or to be taken pursuant thereto.


8.       Subject to the accuracy of the representations and warranties of the
         parties to this Agreement and each of the Investors in the Offering and
         assuming that there has been no general solicitation or advertising of
         the Shares or Warrants to be sold under the Agreement, the offer,
         issuance and sale of the Shares, the Warrants and the Warrant Shares to
         the Investors pursuant to the Agreement, and in the case of the Warrant
         Shares, pursuant to the Warrants, are exempt from the registration
         requirements of the Securities Act.


                                      -2-




<PAGE>

                                    EXHIBIT D

                              PLAN OF DISTRIBUTION
                              --------------------

The selling stockholders may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:

o        ordinary brokerage transactions and transactions in which the
         broker-dealer solicits purchasers;

o        block trades in which the broker-dealer will attempt to sell the shares
         as agent but may position and resell a portion of the block as
         principal to facilitate the transaction;

o        purchases by a broker-dealer as principal and resale by the
         broker-dealer for its account;

o        an exchange distribution in accordance with the rules of the applicable
         exchange;

o        privately negotiated transactions;

o        short sales;

o        broker-dealers may agree with the selling stockholders to sell a
         specified number of such shares at a stipulated price per share;

o        a combination of any such methods of sale; and

o        any other method permitted pursuant to applicable law.

         The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

         Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.





<PAGE>

         The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus after we have filed a supplement to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 supplementing or amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus.

         The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus and may sell the shares of common stock from time to time under
this prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933
supplementing or amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.

         The selling stockholders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares of common stock purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.

         We are required to pay all fees and expenses incident to the
registration of the shares of common stock. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.

         The selling stockholders have advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling stockholders use this prospectus
for any sale of the shares of common stock, they will be subject to the
prospectus delivery requirements of the Securities Act.

         The anti-manipulation rules of Regulation M under the Securities
Exchange Act of 1934 may apply to sales of our common stock and activities of
the selling stockholders.


                                      -2-




<PAGE>

                                    EXHIBIT E

                       COMPANY TRANSFER AGENT INSTRUCTIONS
                       -----------------------------------


North American Stock Transfer Co.
_________________________________
_________________________________

Attention:

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement, dated as of May
25, 2006 (the "AGREEMENT"), by and among Pacific Ethanol, Inc., a Delaware
corporation (the "COMPANY"), and the investors named on the Schedule of
Investors attached thereto (collectively, the "HOLDERS"), pursuant to which the
Company is issuing to the Holders shares (the "COMMON SHARES") of Common Stock
of the Company, par value $0.001 per share (the "COMMON Stock"), and Warrants
(the "WARRANTS"), which are exercisable into shares of Common Stock.

         This letter shall serve as our irrevocable authorization and direction
to you (provided that you are the transfer agent of the Company at such time):

         (i) to issue shares of Common Stock upon transfer or resale of the
Common Shares; and

         (ii) to issue shares of Common Stock upon the exercise of the Warrants
(the "WARRANT SHARES") to or upon the order of a Holder from time to time upon
delivery to you of a properly completed and duly executed Exercise Notice, in
the form attached hereto as EXHIBIT I, which has been acknowledged by the
Company as indicated by the signature of a duly authorized officer of the
Company thereon.

         You acknowledge and agree that so long as you have previously received
(a) written confirmation from the Company's legal counsel that either (i) a
registration statement covering resales of the Common Shares and the Warrant
Shares has been declared effective by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 ACT") and
that resales of the Common Shares and the Warrant Shares may be made thereunder,
or (ii) sales of the Common Shares and the Warrant Shares may be made in
conformity with Rule 144 under the 1933 Act ("RULE 144"), (b) if applicable, a
copy of such registration statement, and (c) notice from legal counsel to the
Company or any Holder that a transfer of Common Shares and/or Warrant Shares has
been effected either pursuant to the registration statement (and a prospectus
delivered to the transferee) or pursuant to Rule 144, then, unless otherwise
required by law, within three (3) business days of your receipt of the notice
referred to in (c), you shall issue the certificates representing the Common
Shares and the Warrant Shares so sold to the transferees registered in the names





<PAGE>

of such transferees, and such certificates shall not bear any legend restricting
transfer of the Common Shares and the Warrant Shares thereby and should not be
subject to any stop-transfer restriction.

         A form of written confirmation (to be used in connection with any sale)
from the Company's outside legal counsel that a registration statement covering
resales of the Common Shares and the Warrant Shares has been declared effective
by the SEC under the 1933 Act is attached hereto as EXHIBIT II.

         Please be advised that the Holders are relying upon this letter as an
inducement to enter into the Agreement and, accordingly, each Holder is a third
party beneficiary to these instructions.

         Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at (559) 435-1771.

                                            Very truly yours,

                                            PACIFIC ETHANOL, INC.


                                            By: ________________________________
                                                Name:
                                                Title:

THE FOREGOING INSTRUCTIONS ARE
ACKNOWLEDGED AND AGREED TO
this ________ day of May, 2006

NORTH AMERICAN STOCK TRANSFER CO.


By: _________________________________________
    Name: ___________________________________
    Title: __________________________________


Enclosures


                                      -2-




<PAGE>

                                    EXHIBIT F

                                 FORM OF WARRANT
                                 ---------------








<PAGE>

                                    SCHEDULES






                                      -2-




<PAGE>

                                 SCHEDULE 3.1(a)

                                  SUBSIDIARIES
                                  ------------

1.       The Company has the following direct or indirect Subsidiaries:

         o        Pacific Ethanol California, Inc., a California corporation.

         o        Kinergy Marketing LLC, an Oregon limited liability company.

         o        ReEnergy, LLC, a California limited liability company.

         o        Pacific Ag. Products, LLC, a California limited liability
                  company.

         o        Pacific Ethanol Holding Co. LLC, a Delaware limited liability
                  company.

         o        Pacific Ethanol Finance Co. LLC, a Delaware limited liability
                  company.

         o        Pacific Ethanol Madera LLC, a Delaware limited liability
                  company.

         o        Pacific Ethanol Visalia LLC, a Delaware limited liability
                  company.

         o        Pacific Ethanol Columbia, LLC, a Delaware limited liability
                  company.

2.       Pursuant to the Membership Interest Pledge Agreement dated April 13,
         2006 by and between Pacific Ethanol Holding Co. LLC ("PE HOLDING") and
         Hudson United Capital, a division of TD Banknorth, N.A. ("HUC"), PE
         Holding has pledged all its membership interests in Pacific Ethanol
         Madera LLC ("PEM") in connection with the Construction and Term Loan
         Agreement dated April 10, 2006 by and between HUC and PEM in the
         principal amount of up to $34,000,000.





<PAGE>

                                 SCHEDULE 3.1(f)

                                 CAPITALIZATION

1. Company's capitalization as of May 25, 2006:

<TABLE>
<S>     <C>
                                                         Authorized                   Issued and Outstanding
                                                         ----------                   ----------------------

Common Stock                                            100,000,000                         31,460,705

Series A Preferred Stock                                 10,000,000                          5,250,000(1)

Common Stock Warrants                            (482,201 shares of Common      (warrant rights exercisable for up to
                                                   Stock are reserved for         482,201 shares of Common Stock are
                                                         issuance)                     currently outstanding)

Amended 1995 Incentive Stock Plan                (822,333 shares of Common      (options exercisable for up to 76,000
(Options to Purchase Common Stock)                 Stock are reserved for            shares of Common Stock are
                                                         issuance)                     currently outstanding)

2004 Stock Option Plan (Options to                 (1,677,500 shares of         (options exercisable for up to 665,000
Purchase Common Stock)                           Common Stock are reserved           shares of Common Stock are
                                                       for issuance)                   currently outstanding)
</TABLE>

2. The Certificate of Designations, Powers, Preferences and Rights of the Series
A Cumulative Redeemable Convertible Preferred Stock (the "CERTIFICATE OF
DESIGNATIONS") of the Company filed with the Delaware Secretary of State on
April 12, 2006, contains certain conversion price adjustment and preemptive
rights provisions in favor of the holders of the Series A Cumulative Redeemable
Convertible Preferred Stock (the "SERIES A PREFERRED STOCK").


--------------------
(1) The holders of the Series A Preferred Stock have conversion rights initially
equivalent to two shares of common stock for each share of Series A Preferred
Stock. The conversion ratio is subject to customary anti-dilution adjustments.
In addition, anti-dilution adjustments are to occur in the event that the
Company issues equity securities at a price equivalent to less than $8.00 per
share, including derivative securities convertible into equity securities (on an
as-converted or as-exercised basis). Certain specified issuances will not result
in anti-dilution adjustments. The shares of Series A Preferred Stock are also
subject to forced conversion upon the occurrence of a transaction that would
result in an internal rate of return to the holders of the Series A Preferred
Stock of 25% or more. Accrued but unpaid dividends on the Series A Preferred
Stock are to be paid in cash upon any conversion of the Series A Preferred
Stock.


                                      -2-




<PAGE>

                                 SCHEDULE 3.1(i)

                                   LITIGATION

         BARRY SPIEGEL

         On December 23, 2005, Barry J. Spiegel, a stockholder of Pacific
Ethanol and former director of Accessity, filed a complaint in the Circuit Court
of the 17th Judicial District in and for Broward County, Florida (Case No.
05018512), or the Spiegel Action, against Barry Siegel, Philip Kart, Kenneth
Friedman and Bruce Udell, or collectively, the Defendants. Messrs. Siegel, Udell
and Friedman are former directors of Accessity and Pacific Ethanol. Mr. Kart is
a former executive officer of Accessity and Pacific Ethanol.

         The Spiegel Action relates to the Share Exchange Transaction and
purports to state the following five counts against the Defendants: (i) breach
of fiduciary duty, (ii) violation of Florida's Deceptive and Unfair Trade
Practices Act, (iii) conspiracy to defraud, (iv) fraud, and (v) violation of
Florida Securities and Investor Protection Act. Mr. Spiegel is seeking $22.0
million in damages. On March 8, 2006, Defendants filed a motion to dismiss the
Spiegel Action.

         The Company has agreed with Messrs. Friedman, Siegel, Kart and Udell to
advance the costs of defense in connection with the Spiegel Action. Under
applicable provisions of Delaware law, the Company may be responsible to
indemnify each of the Defendants in connection with the Spiegel Action. The
final outcome of the Spiegel Action will most likely take an indefinite time to
resolve.

         GERALD ZUTLER

         In January 2003, DriverShield CRM Corp., or DriverShield, then a
wholly-owned subsidiary of the Company's predecessor, Accessity, was served with
a complaint filed by Mr. Gerald Zutler, its former President and Chief Operating
Officer, alleging, among other things, that DriverShield breached his employment
contract, that there was fraudulent concealment of DriverShield's intention to
terminate its employment agreement with Mr. Zutler, and discrimination on the
basis of age and aiding and abetting violation of the New York State Human
Rights Law. The complaint was filed in the Supreme Court of the State of New
York, County of Nassau, Index No.: 654/03. Mr. Zutler is seeking damages
aggregating $2.225 million, plus punitive damages and reasonable attorneys'
fees. DriverShield's management believes that DriverShield properly terminated
Mr. Zutler's employment for cause, and intends to vigorously defend this suit.
An Answer to the complaint was served by DriverShield on February 28, 2003. In
2003, Mr. Zutler filed a motion to have DriverShield's attorney removed from the
case. The motion was granted by the court, but was subsequently overturned by an
appellate court. DriverShield has filed a claim with its insurance carrier under
its directors and officers and employment practices' liability policy. The
carrier has agreed to cover certain portions of the claim as they relate to Mr.
Siegel, DriverShield's former Chief Executive Officer. The policy has a $50,000
deductible and a liability limit of $3.0 million per policy year. At the present
time, the carrier has agreed to cover the portion of the claim that relates to
Mr. Siegel and has agreed to a fifty percent allocation of expenses.


                                      -3-




<PAGE>

         MERCATOR GROUP, LLC

         The Company filed a Demand for Arbitration against Presidion Solutions,
Inc., or Presidion, alleging that Presidion breached the terms of the Memorandum
of Understanding, or the MOU, between Accessity and Presidion dated January 17,
2003. The Company sought a break-up fee of $250,000 pursuant to the terms of the
MOU alleging that Presidion breached the MOU by wrongfully terminating the MOU.
Additionally, the Company sought out of pocket costs of its due diligence
amounting to approximately $37,000. Presidion filed a counterclaim against the
Company alleging that the Company had breached the MOU and therefore owes
Presidion a break-up fee of $250,000. The dispute was heard by a single
arbitrator before the American Arbitration Association in Broward County,
Florida in late February 2004. During June 2004, the arbitrator awarded the
Company the $250,000 break-up fee set forth in the MOU between the Company and
Presidion, as well as the Company's share of the costs of the arbitration and
interest from the date of the termination by Presidion of the MOU, aggregating
approximately $280,000. During the third quarter of 2004, Presidion paid the
Company the full amount of the award with accrued interest. The arbitrator
dismissed Presidion's counterclaim against the Company.

         In 2003, the Company filed a lawsuit seeking damages in excess of $100
million as a result of information obtained during the course of the arbitration
discussed above, against: (i) Presidion Corporation, f/k/a MediaBus Networks,
Inc., Presidion's parent corporation, (ii) Presidion's investment bankers,
Mercator Group, LLC, or Mercator, and various related and affiliated parties and
(iii) Taurus Global LLC, or Taurus, (collectively referred to as the "Mercator
Action"), alleging that these parties committed a number of wrongful acts,
including, but not limited to tortuously interfering in the transaction between
the Company and Presidion. In 2004, the Company dismissed this lawsuit without
prejudice, which was filed in Florida state court. The Company recently refiled
this action in the State of California, for a similar amount, as the Company
believes this to be the proper jurisdiction. On August 18, 2005, the court
stayed the action and ordered the parties to arbitration. The parties agreed to
mediate the matter. Mediation took place on December 9, 2005 and was not
successful. On December 5, 2005, the Company filed a Demand for Arbitration with
the American Arbitration Association. On April 6, 2006, a single arbitrator was
appointed. The final outcome of the Mercator Action will most likely take an
indefinite time to resolve. The Company currently has limited information
regarding the financial condition of the defendants and the extent of their
insurance coverage. Therefore, it is possible that the Company may prevail, but
may not be able to collect any judgment. The share exchange agreement relating
to the Share Exchange Transaction provides that following full and final
settlement or other final resolution of the Mercator Action, after deduction of
all fees and expenses incurred by the law firm representing the Company in this
action and payment of the 25% contingency fee to the law firm, shareholders of
record of Accessity on the date immediately preceding the closing date of the
Share Exchange Transaction will receive two-thirds and the Company will retain
the remaining one-third of the net proceeds from any Mercator Action recovery.


                                      -4-




<PAGE>

                                 SCHEDULE 3.1(k)

                                 TITLE TO ASSETS
                                 ---------------

     1.       Security interest and liens in certain real property and fixtures
              of PEM granted in favor of Lyles Diversified, Inc. pursuant to the
              Deed of Trust (Non-Construction) Security Agreement and Fixture
              Filing with Assignment of Rents dated June 20, 2003 in connection
              with the Term Loan Agreement dated June 16, 2003 by and between
              the Company and Lyles Diversified, Inc., as amended and restated
              on April 13, 2006, with a current principal amount of $3,600,000.

     2.       Security interest and liens in certain real property and fixtures
              of PEM granted in favor of Chicago Title Insurance Company, as
              trustee (the "TRUSTEE") for the benefit of HUC, as beneficiary,
              pursuant to the Deed of Trust Assignment of Leases and Rents and
              Security Agreement, dated April 13, 2006, by PEM to Trustee for
              the benefit of the HUC in connection with the Construction and
              Term Loan Agreement dated April 10, 2006 by and between PEM,
              lenders from time to time parties thereto and HUC in the principal
              amount of up to $34,000,000.


                                      -5-




<PAGE>

                                 SCHEDULE 3.1(p)

                               REGISTRATION RIGHTS
                               -------------------

1. In connection with Pacific Ethanol California, Inc.'s private offering on
March 23, 2005, the Company was obligated under a registration rights agreement
(the "REGISTRATION RIGHTS AGREEMENT"), related to the above financing to file,
on the 151st day following March 23, 2005, a registration statement (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"COMMISSION"), registering for resale shares of common stock, and shares of
common stock underlying investor warrants and certain of the placement agent
warrants, issued in connection with the private offering. If (i) the Company did
not file the Registration Statement within the time period prescribed, or (ii)
the Company failed to file with the Commission a request for acceleration in
accordance with Rule 461 promulgated under the Securities Act of 1933, within
five trading days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that the Registration Statement
will not be "reviewed," or is not subject to further review, or (iii) the
Registration Statement filed or required to be filed under the Registration
Rights Agreement was not declared effective by the Commission on or before
November 3, 2005, or (iv) after the Registration Statement is first declared
effective by the Commission, it ceases for any reason to remain continuously
effective as to all securities registered thereunder, or the holders of such
securities are not permitted to utilize the prospectus contained in the
Registration Statement to resell such securities, for more than an aggregate of
45 trading days during any 12-month period (which need not be consecutive
trading days) (any such failure or breach being referred to as an "Event," and
for purposes of clause (i) or (iii) the date on which such Event occurs, or for
purposes of clause (ii) the date on which such five-trading day period is
exceeded, or for purposes of clause (iv) the date on which such 45-trading
day-period is exceeded being referred to as "EVENT DATE"), then in addition to
any other rights the holders of such securities may have under the Registration
Statement or under applicable law, then, on each such Event Date and on each
monthly anniversary of each such Event Date (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
is required to pay to each such holder an amount in cash, as partial liquidated
damages and not as a penalty, equal to 2.0% of the aggregate purchase price paid
by such holder pursuant to the Securities Purchase Agreement relating to such
securities then held by such holder. If the Company fails to pay any partial
liquidated damages in full within seven days after the date payable, the Company
is required to pay interest thereon at a rate of 18% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to such holder,
accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full. The partial
liquidated damages are to apply on a daily pro-rata basis for any portion of a
month prior to the cure of an Event.

         The Registration Rights Agreement also provides for customary
piggy-back registration rights whereby certain holders of shares of the
Company's common stock, or warrants to purchase shares of the Company's common
stock, can cause the Company to register such shares for resale in connection
with the Company's filing of a registration statement with the Commission to
register shares in another offering. The Registration Rights Agreement also
contains customary representations and warranties, covenants and limitations.


                                      -6-




<PAGE>

2. In connection with the issuance of the Series A Preferred Stock, the Company
entered into a Registration Rights and Stockholders Agreement (the "RIGHTS
AGREEMENT") with Cascade Investment, L.L.C. ("CASCADE"). The Rights Agreement is
to be effective until the holders of the Series A Preferred Stock, and their
affiliates, as a group, own less than 10% of the Series A Preferred Stock issued
under the purchase agreement with Cascade, including common stock into which
such Series A Preferred Stock has been converted (the "TERMINATION DATE"). The
Rights Agreement provides that holders of a majority of the Series A Preferred
Stock, including common stock into which the Series A Preferred Stock has been
converted, may demand and cause the Company, at any time after April 13, 2007,
to register on their behalf the shares of common stock issued, issuable or that
may be issuable upon conversion of the Series A Preferred Stock (the
"REGISTRABLE SECURITIES"). Following such demand, the Company is required to
notify any other holders of the Series A Preferred Stock or Registrable
Securities of the Company's intent to file a registration statement and, to the
extent requested by such holders, include them in the related registration
statement. The Company is required to keep such registration statement effective
until such time as all of the Registrable Securities are sold or until such
holders may avail themselves of Rule 144(k) under the Securities Act of 1933,
which requires, among other things, a minimum two-year holding period and
requires that any holder availing itself of Rule 144(k) not be an affiliate of
the Company. The holders are entitled to three demand registrations on Form S-1
and unlimited demand registrations on Form S-3; however, the Company is not
obligated to effect more than two demand registrations on Form S-3 in any
12-month period.

         In addition to the demand registration rights afforded the holders
under the Rights Agreement, the holders are entitled to "piggyback" registration
rights. These rights entitle the holders who so elect to be included in
registration statements to be filed by the Company with respect to other
registrations of equity securities in connection with underwritten offerings of
such securities. The holders are entitled to unlimited "piggyback" registration
rights.

         The Rights Agreement provides for the initial appointment of two
persons designated by Cascade to the Company's Board of Directors, and the
appointment of one of such persons as the Chairman of the Compensation Committee
of the Board of Directors. Following the Termination Date, Cascade is required
to cause its director designees, and all other designees, to resign from all
applicable committees and boards of directors, effective as of the Termination
Date.

3. In connection with Pacific Ethanol California, Inc.'s private offerings in
February 2004, May 2004 and December 2004, it granted registration rights to the
investors in those offerings. Those registration obligations became the
Company's in connection with the share exchange transaction that occurred in
March 2005. The shares issued in connection with those offerings and the shares
underlying warrants issued in connection with those offerings, including
placement agent warrants, have been previously registered for resale pursuant to
an effective registration statement on Form S-1.

4. The Company also had or has registration rights outstanding in favor of
Helain Kaplan, Doug Dickson, Paul Koehler, Jeff Manternach, Rotom Enterprises,
Inc., Jack Skidell (as successor to Colin Winthrop & Co., Inc.), and Barry
Siegel. Those registration obligations became the Company's in connection with
the share exchange transaction that occurred in March 2005. The shares issued to
such persons or entities and/or the shares underlying warrants issued to such
persons or entities have been previously registered for resale pursuant to an
effective registration statement on Form S-1.


                                      -7-




<PAGE>

                                SCHEDULE 3.1(aa)

                                  INDEBTEDNESS
                                  ------------

1.       Loan Revision/Extension Agreement dated October 4, 2005 by and between
         Comerica Bank and Kinergy Marketing, LLC in the amount of $2,000,000,
         which amount is guaranteed by the Company pursuant to that certain
         Guaranty dated October 4, 2005 in favor of Comerica Bank; Master
         Revolving Note dated September 24, 2004 of Kinergy Marketing, LLC in
         favor of Comerica Bank; and Security Agreement dated as of September
         24, 2004 executed by Kinergy Marketing, LLC in favor of Comerica Bank.

2.       Intercreditor and Collateral Sharing Agreement dated April 13, 2006 by
         and among HUC, PEM and Lyles Diversified, Inc. whereby Lyles
         Diversified, Inc. agreed to subordinate to HUC its security interest
         and liens in certain real property and fixtures of PEM granted in favor
         of Lyles Diversified, Inc. pursuant to the Deed of Trust
         (Non-Construction) Security Agreement and Fixture Filing with
         Assignment of Rents dated June 20, 2003 in connection with the Term
         Loan Agreement dated June 16, 2003 by and between the Company and Lyles
         Diversified, Inc. as amended and restated on April 13, 2006, with a
         current principal amount of $3,600,000.

3.       Amended and Restated Term Loan Agreement dated April 13, 2006 by and
         between Lyles Diversified, Inc. and PEM, with a current principal of
         $3,600,000.

4.       Construction and Term Loan Agreement dated April 10, 2006 by and among
         PEM, Comerica Bank and HUC; and Construction Loan Note dated April 13,
         2006 by PEM in favor of Comerica Bank and Construction Loan Note dated
         April 13, 2006 by PEM in favor of HUC in the aggregate principal amount
         of up to $34,000,000.

5.       Security interest and liens in certain personal property of PEM granted
         in favor of HUC, as Administrative Agent on behalf of certain lenders,
         pursuant to the Assignment and Security Agreement dated April 13, 2006
         by and between PEM and HUC; and Member Interest Pledge Agreement dated
         April 13, 2006 by PEM in favor of HUC; and Disbursement Agreement dated
         April 13, 2006 by and among PEM, HUC, Comerica Bank and Wealth
         Management Group of TD Banknorth, N.A, all in connection with the
         Construction and Term Loan Agreement and Construction Loan Notes
         referred to in item 4 above.

6.       Security interest and liens in certain real property and fixtures of
         PEM granted in favor of Chicago Title Insurance Company, as trustee
         (the "TRUSTEE") for the benefit of the HUC, as beneficiary, pursuant to
         the Deed of Trust Assignment of Leases and Rents, Security Agreement
         and Fixture Filing, dated April 13, 2006, by PEM to Trustee for the
         benefit of the HUC in connection with the Construction and Term Loan
         Agreement and Construction Loan Notes referred to in item 4 above.

7.       Side Letter Agreement dated April 13, 2006 by and between Pacific
         Ethanol California, Inc. and Lyles Diversified, Inc. regarding the
         guaranty of repayment obligation of Pacific Ethanol Madera under the
         Amended and Restated Term Loan Agreement dated April 13, 2006 by and
         between PEM and Lyles Diversified, Inc., with a current principal
         amount of $3,600,000.


                                      -8-




<PAGE>

8.       Side Letter Agreement, dated November 2, 2005 by and between Pacific
         Ethanol California, Inc. and Lyles Diversified, Inc. relating to the
         reimbursement of certain liquidated damage payments up to an aggregate
         amount of $8,100,000 in connection with Phase 2 Design-Build Agreement
         dated November 2, 2005 by and between PEM and W.M. Lyles Co.

9.       Security interest and liens in certain real property and fixtures of
         PEM granted in favor of Lyles Diversified, Inc. pursuant to the Deed of
         Trust (Non-Construction) Security Agreement and Fixture Filing with
         Assignment of Rents, dated April 13, 2006, by PEM in favor of Lyles
         Diversified, Inc. in connection with the Amended and Restated Term Loan
         Agreement referred to in item 3 above.


                                      -9-




<PAGE>

                                SCHEDULE 3.1(ee)

                                SUBSIDIARY RIGHTS
                                -----------------


     1.       Pursuant to the Membership Interest Pledge Agreement, PE Holding,
              as sole member of PEM, is restricted from causing PEM to make,
              declare or pay any distributions, dividends or returns of capital,
              or purchase, redeem or otherwise acquire for value and membership
              interests or other ownership interests in PEM, or make any
              distribution of assets or property to its members as such, except
              as permitted by the Construction and Term Loan Agreement dated
              April 10, 2006 by and among PEM, lenders from time to time parties
              thereto and HUC.


                                      -10-