Document:

paceth_8k-ex1005.htm

    Exhibit 10.5

     

    
      

      PACIFIC
ETHANOL, INC.

      

      Warrant
To Purchase Common Stock

      

      Warrant
No.:                                                                                                                                          

      Number of
Shares of Common Stock: ___________

      Date of
Issuance: May [___], 2008 ("Issuance Date")

      

      Pacific
Ethanol, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [___________], the registered holder hereof or its
permitted assigns (the "Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "Warrant"), at any time or
times on or after the date six (6) months after the date hereof (the “Exercisability Date”), but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below),
[_________] ([_______]) fully paid nonassessable shares of Common Stock (as
defined below) (the
"Warrant
Shares").  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section
15.  This Warrant is the Warrant to purchase Common Stock (this
"Warrant") issued
pursuant to Section 2 of that certain Subscription Agreement (the “Subscription Agreement”),
dated as of May 22, 2008 (the "Subscription Date"), by and
among the Company and the Holder (the "Subscription Agreement")
pursuant to the Company’s Registration Statements on Form S-3 (File number
333-143617 ) (the “Registration
Statement”).

       

      1. EXERCISE OF
WARRANT.

       

      (a) Mechanics of
Exercise.  Subject to the terms and conditions hereof, this
Warrant may be exercised by the Holder on any day on or after the Exercisability
Date, in whole or in part, by delivery of a written notice, in the form attached
hereto as Exhibit
A (the "Exercise
Notice"), of the Holder's election to exercise this
Warrant.  The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder, but shall deliver the original
Warrant within five (5) days thereafter.  Execution and delivery of
the Exercise Notice with respect to less than all of the Warrant Shares shall
have the same effect as cancellation of the original Warrant and issuance of a
new Warrant evidencing the right to purchase the remaining number of Warrant
Shares.  On or before the second (2nd) Business Day following the date
on which the Company has received the Exercise Notice, the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Notice to the Holder and American Stock Transfer & Trust Company,
the Company's transfer Agent ("Transfer
Agent").  On or before the third (3rd)
Business Day following the date on which the Company has received the Exercise
Notice (the "Share Delivery
Date"), the Company shall (X) provided that the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the Holder's or its designee's 

       

      
        
          
          

        

        
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      balance
account with DTC through its Deposit Withdrawal Agent Commission system, or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company's
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise.  Upon delivery of the Exercise Notice, the Holder shall be
deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date such Warrant Shares are credited to the Holder's DTC
account or the date of delivery of the certificates evidencing such Warrant
Shares, as the case may be.  If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than three (3)
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised.  No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole number.  The Company shall pay any
and all taxes which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

       

      (b) Exercise
Price.  For purposes of this Warrant, "Exercise Price" means $7.10,
subject to adjustment as provided herein.

       

      (c) Company's Failure to Timely
Deliver Securities.  If the Company shall fail for any reason
or for no reason to issue to the Holder within three (3) Business Days of
receipt of the Exercise Notice in compliance with the terms of this Section 1, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company's share
register or to credit the Holder's balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder's
exercise of this Warrant, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a "Buy-In"),
then the Company shall, within three (3) Business Days after the Holder's
request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which
point the Company's obligation to deliver such certificate (and to issue such
Warrant Shares) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Warrant
Shares and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of exercise.

       

      
        
          
          

        

        
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      (d) Payment of Exercise
Price.  The Holder shall pay the Exercise Price in immediately
available funds; provided,
however, that (i) upon notice by the Company to the Holder, subject to
the sole discretion of the Company, the Holder may satisfy its obligation to pay
the Exercise Price through a “cashless exercise”, or (ii) if at any time the on
or after the Exercisability Date the Registration Statement covering the resale
of the Warrant Shares is not effective on such exercise date, the Holder may
satisfy its obligation to pay the Exercise Price through a “cashless exercise,”
in which event the Company shall issue to the Holder the number of Warrant
Shares determined as follows:

       

      
        	 
      	
                X =
      Y [(A-B)/A]

              
	
                where:

              	 
      
	 
      	
                X =
      the number of Warrant Shares to be issued to the
Holder.

              
	 
      	 
      
	 
      	
                Y =
      the number of Warrant Shares with respect to which this Warrant is being
      exercised.

              
	 
      	 
      
	 
      	
                A =
      the average of the Closing Prices for the five Trading Days immediately
      prior to (but not including) the Exercise Date.

              
	 
      	 
      
	 
      	
                B =
      the Exercise Price.

              

      

      

       

      (e)   Rule
144.  For purposes of Rule 144(d) promulgated under the
Securities Act, as in effect on the date hereof, it is intended that the Warrant
Shares issued in a Cashless Exercise shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.

       

      (f) Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed.

       

      (g)  Beneficial
Ownership.  The Holder shall not have the right to exercise
this Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person's affiliates) would beneficially own in excess
of 9.99% (the "Maximum
Percentage") of the shares of Common Stock outstanding immediately after
giving effect to such exercise.  The Company shall be entitled to rely
on Holder’s exercise notice as an indication that Holder will not, pursuant to
such exercise, exceed the Maximum Percentage.  For purposes of the
foregoing sentence, the aggregate number of shares of Common Stock beneficially
owned by such Person and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein..  Except as set forth in
the preceding sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance 

       

      
        
          
          

        

        
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      with
Section 13(d) of the Securities Exchange Act of 1934, as amended.  For
purposes of this Warrant, in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company's most recent Form 10-K, Form 10-Q,
Current Report on Form 8-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public announcement
by the Company or (3) any other notice by the Company or the Transfer Agent
setting forth the number of shares of Common Stock outstanding.  For
any reason at any time, upon the written or oral request of the Holder, the
Company shall within two (2) Business Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder and its affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported.  By written notice to the Company, the Holder may from time
to time increase or decrease the Maximum Percentage to any other percentage not
in excess of 9.99% specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 1(h) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation.

       

      2. ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

       

       (a)           Adjustment upon Subdivision
or Combination of Common Stock.  If the Company at any time on
or after the Subscription Date subdivides (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased.  If the Company at any time on or after the
Subscription Date combines (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination will
be proportionately increased and the number of Warrant Shares will be
proportionately decreased.  Any adjustment under this Section 2(a)
shall become effective at the close of business on the date the subdivision or
combination becomes effective.

       

      (b) Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions,
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of
the Holder; provided that no such adjustment pursuant to this Section 2(b) will
increase the Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2.

       

      
        
          
          

        

        
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      3. RIGHTS UPON DISTRIBUTION OF
ASSETS.  If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, stock split, spin off, subdivision,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case:

       

      (a) any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of
Common Stock on the Trading Day immediately preceding such record date;
and

       

      (b) the
number of Warrant Shares shall be increased or decreased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of shares of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the
event that the Distribution is of shares of Common Stock (or common stock)
("Other Shares of Common
Stock") of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an adjustment in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that would
have been payable to the Holder pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).

       

      4. PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

       

      (a) Purchase
Rights.  In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any rights to purchase
stock, warrants, securities or other property pro rata to the record holders of
any class of shares of Common Stock (the "Purchase Rights"), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of shares of Common Stock are
to be determined for the grant, issue or sale of such Purchase
Rights.

       

      
        
          
          

        

        
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      (b) In
connection with any Fundamental Transaction, the Company shall make appropriate
provision so that this Warrant shall thereafter be exercisable for shares of the
Successor Entity based upon the conversion ratio or other consideration payable
in the Fundamental Transaction. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the exercise of this
Warrant.  Without limiting the foregoing, in connection with a
Fundamental Transaction that constitutes a Change of Control, at the request of
the Holder delivered before the 90th day after such Fundamental Transaction, the
Company (or the Successor Entity) shall purchase this Warrant from the Holder by
paying to the Holder, within five (5) Business Days after such request (or, if
later, on the effective date of the Fundamental Transaction), cash in an amount
equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of such Fundamental Transaction.

       

      In the
event that any person becomes a Parent Entity of the Company, such person shall
assume all of the obligations of the Company under this Warrant with the same
effect as if such person had been named as the Company herein.

       

      5. NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the
Holder.  Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as this Warrant is outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this Warrant,
100% of the number of shares of Common Stock issuable upon exercise of this
Warrant then outstanding (without regard to any limitations on
exercise).

       

      6. WARRANT HOLDER NOT DEEMED A
STOCKHOLDER.  Except as otherwise specifically provided herein,
the Holder, solely in such Person's capacity as a holder of this Warrant, shall
not be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person's capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.

       

      
        
          
          

        

        
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      7. REISSUANCE OF
WARRANTS.

       

      (a) Transfer of
Warrant.  If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

       

      (b) Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

       

      (c) Exchangeable for Multiple
Warrants.  This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Warrant
or Warrants (in accordance with Section 7(d)) representing in the aggregate the
right to purchase the number of Warrant Shares then underlying this Warrant, and
each such new Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such surrender;
provided, however, that no Warrants for fractional shares of Common Stock shall
be given.

       

      (d) Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.

       

      8. NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 7 of Annex I to
the Subscription Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason
therefore.

       

      
        
          
          

        

        
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      9. AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Holder.

       

      10. GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accor­dance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

       

      11. CONSTRUCTION;
HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof.  The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

       

      12. DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder.  If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two (2) Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder  or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant.  The Company
shall cause at its expense the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations.  Such investment
bank's or accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.

       

      13. REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant.

       

      
        
          
          

        

        
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      14. TRANSFER. This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company.

       

      15. CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

       

      (a) "Black Scholes Value" means the
value of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg determined as of the end of day
immediately following the public announcement of the applicable Fundamental
Transaction and reflecting (i) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as
of such date of request and (ii) an expected volatility equal to the 30 day
volatility obtained from the HVT function on Bloomberg for the period ending as
of the end of the day immediately following the public announcement of the
applicable Fundamental Transaction.

       

      (b) "Bloomberg" means Bloomberg
Financial Markets.

       

      (c) "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.

       

      (d) "Change of Control" means any
Fundamental Transaction other than (A) any reorganization, recapitalization or
reclassification of the Common Stock, in which holders of the Company's voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

       

      (e) "Closing Bid Price" and "Closing Sale Price" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or the last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.).  If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder.  All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

       

      
        
          
          

        

        
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      (f) "Common Stock" means
(i) the Company's shares of Common Stock, par value $0.001 per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

       

      (g) "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., The American Stock
Exchange, The NASDAQ Global Select Market or The NASDAQ Capital
Market.

       

      (h) "Expiration Date" means the
date sixty (60) months after the Issuance Date or, if such date falls on a day
other than a Business Day or on which trading does not take place on the
Principal Market (a "Holiday"), the next date that
is not a Holiday.

       

      (i) "Fundamental Transaction" means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (iii) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock, or (vi) any "person" or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common
Stock.

       

      (j) "Parent Entity" of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

       

      (k) "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (l) "Principal Market" means The
NASDAQ Global Market.

       

      (m) "Successor Entity" means the
Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

       

      (n) "Trading Day" means any day on
which the Common Stock are traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock are
then traded; provided that "Trading Day" shall not include any day on which the
Common Stock are scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock are suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York
time).

       

      [Signature Page
Follows]

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

      

      

      
        	
                 
      

              	
                PACIFIC
      ETHANOL, INC.

              
	 	 
	 	 
	 	 By:
  _________________________
	 	 Name:
	 	 Title:

      

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      
EXHIBIT
A

      

      EXERCISE
NOTICE

       

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

      

      PACIFIC
ETHANOL, INC.

       

      The undersigned holder hereby exercises
the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Pacific
Ethanol, Inc., a Delaware corporation (the "Company"), evidenced by the
attached Warrant to Purchase Common Stock (the "Warrant").  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

      

      1.  Form of Exercise
Price.  The Holder’s payment of the Exercise Price shall be made
as:

      

      
        	
                 
      

              	
                ____________

              	
                a
      "Cash
      Exercise" with respect to _________________ Warrant Shares;
      and/or

              

      

      

      
        	
                 
      

              	
                ____________

              	
                a
      "Cashless
      Exercise" with respect to _______________ Warrant
      Shares.

              

      

      

      2.  Payment of Exercise
Price.  In the event that the holder conducted a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the
holder shall pay the Aggregate Exercise Price in the sum of $___________________
to the Company in accordance with the terms of the Warrant.

      

      3.  Delivery of Warrant
Shares.  The Company shall deliver to the holder __________ Warrant
Shares in accordance with the terms of the Warrant.

      

      Date:
_______________ __, ____

       

       

      ________________________________
  
Name of Registered Holder

      

      

      By: ___________________________

      Name:

      Title:

      

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      ACKNOWLEDGMENT

      
 

      The Company hereby acknowledges this
Exercise Notice and hereby directs American Stock Transfer & Trust Company
to issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated ______, 200_ from the Company and
acknowledged and agreed to by American Stock Transfer & Trust
Company.

       

       

      
        
          	
                   
      

                	
                  PACIFIC
      ETHANOL, INC.

                
	 	 
	 	 
	 	 By:
  _________________________
	 	     
       Name:
	 	     
       Title:

        

      

       

       

       

       

       

       

       

       

      14paceth_8k-ex1006.htm

    Exhibit 10.6

     

    
      

      

      6,000,000
Shares of Common Stock

       

      and
Warrants to Purchase 3,000,000 Shares of Common Stock

       

      PACIFIC
ETHANOL, INC.

       

      PLACEMENT AGENT
AGREEMENT

       

      May 22,
2008

       

      LAZARD
CAPITAL MARKETS LLC

      30
Rockefeller Plaza

      New York,
New York 10020

       

      Dear
Sirs:

       

      1. Introduction.  Pacific
Ethanol, Inc., a Delaware corporation (the “Company”), proposes to issue
and sell to the purchasers, pursuant to the terms and conditions of this
Placement Agent Agreement (this “Agreement”) and the
subscription agreement in the form of EXHIBIT
A attached
hereto (the “Subscription
Agreements”) entered into with the purchasers identified therein (each a
“Purchaser” and
collectively, the “Purchasers”), up to an
aggregate of 6,000,000 units (the “Units”), each Unit consisting
of (i) one share (a “Share,” collectively, the
“Shares”) of its common
stock, par value $0.001 per share (the “Common Stock”), (ii) one
warrant (the “Warrant”
and, together, the “Warrants”) to purchase 0.50
shares of Common Stock (and the fractional amount being the “Warrant Ratio”) during a term
of five years, in substantially the form attached hereto as Exhibit B, subject to
adjustment by the Company’s Board of Directors, or a committee thereof, for a
purchase price of $4.75 per Unit (the “Purchase
Price”).  The Shares issuable upon exercise of the Warrants are
referred to herein as the “Warrant Shares” and, together
with the Units, the Shares and the Warrants, are referred to herein as the
“Securities.” The
Company hereby confirms that Lazard Capital Markets LLC (“LCM”, or the “Placement Agent”) acted as
Placement Agent in accordance with the terms and conditions hereof.

       

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

       

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

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      (IV) The Units
are being sold to the Purchaser(s) at a price of $4.75 per Unit.  The
purchases of the Units by the Purchaser(s) shall be evidenced by the execution
of Subscription Agreements by each of the Purchasers and the
Company.

       

      (V) (a)           As
compensation for services rendered, on the Closing Date (as defined in Section 4 hereof),
the Company shall pay to the Placement Agent by wire transfer of immediately
available funds to an account or accounts designated by the Placement Agent, an
aggregate amount equal to five percent (5.0%) of the gross proceeds received by
the Company from the sale of the Units on such Closing Date.  Such
amount may be deducted from the payment made by the Purchaser(s) to the Company
and paid directly to the Placement Agent on the Closing Date.

       

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

      

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      3. Representations
And Warranties Of The Company.

       

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

       

      (a) A
registration statement of the Company on Form S 3 (File No. 333-143617)
(including all pre-effective amendments thereto, the “Initial Registration
Statement”) in respect of the Units has been filed with the Securities
and Exchange Commission (the “Commission”) pursuant to Rule
415 under the Securities Act of 1933, as amended (the “Securities
Act”).  The Company meets the requirements for use of Form S-3
under the Securities Act, and the rules and regulations of the Commission
thereunder (the “Rules and
Regulations”). The Initial Registration Statement and any post-effective
amendment thereto, each in the form heretofore delivered to the Placement Agent,
and, excluding exhibits thereto, have been declared effective by the Commission
in such form and meet the requirements of the Securities Act and the Rules and
Regulations.  Other than (i) a registration statement, if any,
increasing the size of the offering filed pursuant to Rule 462(b) under the
Securities Act and the Rules and Regulations (a “Rule 462(b) Registration
Statement”) and (ii) the Prospectus (as defined below) contemplated by
this Agreement to be filed pursuant to Rule 424(b) of the Rules and Regulations
in accordance with Section 5 hereof and
(iii) any Issuer Free Writing Prospectus (as defined below), no other document
with respect to the offer and sale of the Units has heretofore been filed with
the Commission.  No stop order suspending the effectiveness of the
Initial Registration Statement, any post-effective amendment thereto or the Rule
462(b) Registration Statement, if any, has been issued and no proceeding for
that purpose or pursuant to Section 8A of the Securities Act has been initiated
or threatened by the Commission.  The prospectus filed as part of the
registration statement in the form in which it has most recently been filed with
the Commission on or prior to the date of this Agreement, is hereinafter called
the “Base
Prospectus.”  The various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, in each case
including all exhibits thereto and including (i) the information contained in
the Prospectus filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations and deemed by virtue of Rules 430B and 430C under the Securities
Act to be part of the Initial Registration Statement at the time it became
effective and (ii) the documents incorporated by reference in the Rule 462(b)
Registration Statement at the time the Rule 462(b) Registration Statement became
effective, are hereinafter collectively called the “Registration
Statement.”  The base prospectus included in the Initial
Registration Statement at the time of effectiveness thereof, as supplemented by
the final prospectus supplement relating to the offer and sale of the Units, in
the form filed pursuant to and within the time limits described in Rule 424(b)
under the Rules and Regulations, is hereinafter called the “Prospectus.”

       

      Any
reference herein to any Registration Statement or the Prospectus shall be deemed
to refer to and include the documents incorporated by reference
therein.  Any reference to any amendment or supplement to the
Prospectus shall be deemed to refer to and include any documents filed after the
date of such Prospectus under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”),
and incorporated by reference in such Prospectus.  Any reference to
(i) any Registration Statement shall be deemed to refer to and include the
annual report of the last completed fiscal year of the Company on Form 10-K
filed under Section 13(a) or 15(d) of the Exchange Act prior to the date hereof
and (ii) the effective date of such Registration Statement shall be deemed to
refer to and include the date such Registration Statement became effective and,
if later, the date such Form 10-K was so filed.  Any reference to any
amendment to the Registration Statement shall be deemed to refer to and include
any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the
Exchange Act after the date of this Agreement that is incorporated by reference
in the Registration Statement.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

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

       

      “Applicable Time” means 6:00
p.m., New York time, on the date of this Agreement or such other time as agreed
to by the Company and the Placement Agent.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      (c) No order
preventing or suspending the use of any Issuer Free Writing Prospectus or the
Prospectus relating to the Offering has been issued by the Commission, and no
proceeding for that purpose or pursuant to Section 8A of the Securities Act has
been instituted or threatened by the Commission.

       

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

       

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

       

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

       

       

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

       

      (h) At the
time of filing the Initial Registration Statement, any 462(b) Registration
Statement and any post-effective amendments thereto, and at the date hereof, the
Company was not, and the Company currently is not, an “ineligible issuer,” as
defined in Rule 405 of the Rules and Regulations.

       

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

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (j) The
Company has the full right, power and authority to enter into this Agreement,
the Subscription Agreement(s) and the Warrant(s), and to perform and to
discharge its obligations hereunder and thereunder; and each of this Agreement,
each of the Subscription Agreement(s), this Agreement and the Subscription
Agreement(s) has been duly authorized, executed and delivered by the Company,
and constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms.

       

      (k) The
shares of Common Stock to be issued and sold by the Company to the Purchasers
hereunder and under the Subscription Agreements and the shares of Common Stock
issuable upon the exercise of the Warrants (the “Warrant Shares”) have been
duly and validly authorized and the Common Stock, when issued and delivered
against payment therefor as provided herein and in the Subscription Agreements
and the Warrant Shares, when issued and delivered against payment therefore as
provided in the Warrants, will be duly and validly issued, fully paid and
non-assessable and free of any preemptive or similar rights and will conform to
the description thereof contained in the General Disclosure Package and the
Prospectus.

       

      (l) The
Company has an authorized capitalization as set forth in the Pricing Prospectus,
and all of the issued shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable, have been
issued in compliance with Unites States federal and state securities laws, and
conform to the description thereof contained in the General Disclosure Package
and the Prospectus.  As of May 22, 2008, there were 44,131,065 shares
of Common Stock, par value $0.001 per share, issued and outstanding, 3,750,000
shares of Series A preferred stock, par value $0.001 per share, of the Company
issued and outstanding and 2,346,152 shares of Series B Preferred Stock, par
value $0.001 per share, of the Company issued and outstanding, and 18,382,684
shares of Common Stock were issuable upon the exercise of all options, warrants
and convertible securities outstanding as of such date. Since such date, the
Company has not issued any securities, other than Common Stock of the Company
issued pursuant to the exercise of stock options previously outstanding under
the Company’s stock option plans or the issuance of restricted Common Stock
pursuant to employee stock purchase plans.  All of the Company’s
options, warrants and other rights to purchase or exchange any securities for
shares of the Company’s capital stock have been duly authorized and validly
issued and were issued in compliance with United States federal and state
securities laws.  None of the outstanding shares of Common Stock was
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the
Company.  There are no authorized or outstanding shares of capital
stock, options, warrants, preemptive rights, rights of first refusal or other
rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company or any of its
subsidiaries other than those described above or accurately described in the
General Disclosure Package.  The description of the Company’s stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted thereunder, as described in the General Disclosure Package
and the Prospectus, accurately and fairly present the information required to be
shown with respect to such plans, arrangements, options and rights.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      (o) Except
for the registration of the Common Stock and Warrants under the Securities Act,
and such consents, approvals, authorizations, registrations or qualifications as
may be required under the Exchange Act and applicable state or foreign
securities laws and the Nasdaq Global Market (“Nasdaq GM”) in connection with
the offering and sale by the Company of the Units and the listing of the Common
Stock on the Nasdaq GM, no consent, approval, authorization or order of, or
filing, qualification or registration (each an “Authorization”) with, any
court, governmental or non-governmental agency or body, foreign or domestic,
which has not been made, obtained or taken and is not in full force and effect,
is required for the execution, delivery and performance of this Agreement, the
Warrant and the Subscription Agreements by the Company, the offer or sale of the
Units or the consummation of the transactions contemplated hereby or thereby;
and no event has occurred that allows or results in, or after notice or lapse of
time or both would allow or result in, revocation, suspension, termination or
invalidation of any such Authorization or any other impairment of the rights of
the holder or maker of any such Authorization.  All corporate
approvals (including those of stockholders) necessary for the Company to
consummate the transactions contemplated by this Agreement have been obtained
and are in effect.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (p) Hein
& Associates LLP, who have certified certain financial statements and
related schedules included or incorporated by reference in the Registration
Statement, the General Disclosure Package and the Prospectus, and have audited
the Company’s internal control over financial reporting and management’s
assessment thereof, is an independent registered public accounting firm within
the meaning of Article 2-01 of Regulation S-X and the Public Company Accounting
Oversight Board (United States) (the “PCAOB”).  Except as
disclosed in the Registration Statement and as pre-approved in accordance with
the requirements set forth in Section 10A of the Exchange Act, Hein &
Associates LLP has not been engaged by the Company to perform any “prohibited
activities” (as defined in Section 10A of the Exchange Act).

       

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

       

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

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

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

       

      (ee) The
Company and its subsidiaries are in compliance with all foreign, federal, state
and local rules, laws and regulations relating to the use, treatment, storage
and disposal of hazardous or toxic substances or waste and protection of health
and safety or the environment which are applicable to their businesses (“Environmental
Laws”).  There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission, or other release of any kind
of toxic or other wastes or other hazardous substances by, due to, or caused by
the Company or any of its subsidiaries (or, to the Company’s knowledge, any
other entity for whose acts or omissions the Company or any of its subsidiaries
is or may otherwise be liable) upon any of the property now or previously owned
or leased by the Company or any of its subsidiaries, or upon any other property,
in violation of any law, statute, ordinance, rule, regulation, order, judgment,
decree or permit or which would, under any law, statute, ordinance, rule
(including rule of common law), regulation, order, judgment, decree or permit,
give rise to any liability; and there has been no disposal, discharge, emission
or other release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which the Company or any of its subsidiaries has
knowledge.  In the ordinary course of business, the Company and its
subsidiaries conduct periodic reviews of the effect of Environmental Laws on
their business and assets, in the course of which they identify and evaluate
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or Governmental Permits issued thereunder,
any related constraints on operating activities and any potential liabilities to
third parties).  On the basis of such reviews, the Company has
reasonably concluded that such associated costs and liabilities would not have,
singularly or in the aggregate, a Material Adverse Effect.

       

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

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

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

       

      (hh) The
Company and each of its subsidiaries maintains a system of internal control over
financial reporting (as such term is defined in Rule 13a-15 of the General Rules
and Regulations under the Exchange Act (the “Exchange Act Rules”)) that
complies with the requirements of the Exchange Act and has been designed by the
Company’s principal executive officer and principal financial officer, or under
their supervision, to provide reasonable assurances that (i) transactions are
executed in accordance with management’s general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.  The Company’s internal control
over financial reporting is effective.  Except as described in the
General Disclosure Package, since the end of the Company’s most recent audited
fiscal year, there has been (A) no material weakness in the Company’s internal
control over financial reporting (whether or not remediated) and (B) no change
in the Company’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.  The Company’s internal control over
financial reporting is overseen by the Audit Committee of the Board of Directors
of the Company (the “Audit
Committee”) in accordance with the Exchange Act Rules.  The
Company has not publicly disclosed or reported to the Audit Committee or to the
Board, and within the next 90 days the Company does not reasonably expect to
publicly disclose or report to the Audit Committee or the Board, a significant
deficiency, material weakness (other than the material weaknesses described in
the Company’s annual report on Form 10-K for the fiscal year ended December 31,
2007 and quarterly report on Form 10-Q for the quarterly period ended March 31,
2008), change in internal control over financial reporting or fraud involving
management or other employees who have a significant role in the internal
control over financial reporting (each an “Internal Control Event”), any
violation of, or failure to comply with, the U.S. Securities Laws, or any matter
which, if determined adversely, would have a Material Adverse
Effect.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

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

       

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

       

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

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      (ss) The
Company is in compliance with all applicable provisions of (A) the
Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder
or implementing the provisions thereof (the “Sarbanes-Oxley Act”) that are
then in effect and (B) all applicable corporate governance requirements set
forth in the Nasdaq Global Marketplace Rules that are then in effect; and the
Company is actively taking steps to ensure that it will be in compliance with
other applicable provisions of the Sarbanes-Oxley Act and Nasdaq Global
Marketplace Rules not currently in effect upon and at all times after the
effectiveness of such provisions.

       

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

       

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

       

      (vv) Neither
the Company nor any subsidiary nor any of their affiliates (within the meaning
of the Financial Industry Regulatory Authority, Inc. (“FINRA”)) Conduct Rule
2720(b)(1)(a)) directly or indirectly controls, is controlled by, or is under
common control with, or is an associated person (within the meaning of Article
I, Section 1(ee) of the By-laws of FINRA) of, any member firm of
FINRA.

       

      (ww) No
approval of the shareholders of the Company under the rules and regulations of
Nasdaq, and no approval of the shareholders of the Company thereunder is
required for the Company to issue and deliver to the Purchasers the Units,
including such as may be required pursuant to Rule 4350 of the Nasdaq Global
Marketplace Rules.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

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

       

      4. The
Closing.  The
time and date of closing and delivery of the documents required to be delivered
to the Placement Agent pursuant to Sections 5 and 7 hereof shall be
at 10:00 A.M., New York time, on May 29, 2008 (the “Closing Date”) at the office
of Rutan & Tucker, LLP, 611 Anton Boulevard, 14th Floor, Costa Mesa,
California 92626.

       

      5. Further
Agreements Of The Company.

       

      (I) The
Company agrees with the Placement Agent and the Purchasers:

       

      (a) To
prepare the Rule 462(b) Registration Statement, if necessary, in a form approved
by the Placement Agent and file such Rule 462(b) Registration Statement with the
Commission by 10:00 P.M., New York time, on the date hereof, and the Company
shall at the time of filing either pay to the Commission the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Rules and Regulations; to
prepare the Prospectus in a form approved by the Placement Agent containing
information previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rules 430A, 430B or 430C of the Rules and Regulations
and to file such Prospectus pursuant to Rule 424(b) of the Rules and Regulations
not later than the second (2nd) business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may be
required by Rule 430A of the Rules and Regulations; to notify the Placement
Agent immediately of the Company’s intention to file or prepare any supplement
or amendment to any Registration Statement or to the Prospectus and to make no
amendment or supplement to the Registration Statement, the General Disclosure
Package or to the Prospectus to which the Placement Agent shall reasonably
object by notice to the Company after a reasonable period to review; to advise
the Placement Agent, promptly after it receives notice thereof, of the time when
any amendment to any Registration Statement has been filed or becomes effective
or any supplement to the General Disclosure Package or the Prospectus or any
amended Prospectus has been filed and to furnish the Placement Agent with copies
thereof; to file promptly all material required to be filed by the Company with
the Commission pursuant to Rules 433(d) or 163(b)(2) of the Rules and
Regulations, as the case may be; to file promptly all reports and any definitive
proxy or information statements required to be filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of a
prospectus (or in lieu thereof, the notice referred to in Rule 173(a) of the
Rules and Regulations) is required in connection with the offering or sale of
the Units; to advise the Placement Agent, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Issuer Free Writing Prospectus or the
Prospectus, of the suspension of the qualification of the Units for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement, the General Disclosure Package or
the Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any Issuer
Free Writing Prospectus or the Prospectus or suspending any such qualification,
and promptly to use its best efforts to obtain the withdrawal of such
order.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

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

       

      (c) If at any
time when a Prospectus relating to the Units is required to be delivered under
the Securities Act any event occurs or condition exists as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made
when the Prospectus is delivered (or in lieu thereof, the notice referred to in
Rule 173(a) of the Rules and Regulations), not misleading, or if it is necessary
at any time to amend or supplement any Registration Statement or the Prospectus
or to file under the Exchange Act any document incorporated by reference in the
Prospectus to comply with the Securities Act or the Exchange Act, that the
Company will promptly notify the Placement Agent thereof and upon their request
will prepare an appropriate amendment or supplement to the Prospectus that
corrects such statement or omission or effect such compliance and will furnish
without charge to the Placement Agent and to any dealer in securities as many
copies as the Placement Agent may from time to time reasonably request of such
amendment or supplement.

       

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

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

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

       

      (f) To
furnish promptly to the Placement Agent and to counsel for the Placement Agent a
signed copy of the Registration Statement as originally filed with the
Commission, and of each amendment thereto filed with the Commission, including
all consents and exhibits filed therewith.

       

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

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      (j) Upon
request, during the period of five (5) years from the date hereof, to deliver to
the Placement Agent, (i) as soon as they are available, copies of all reports or
other communications furnished to shareholders, and (ii) as soon as they are
available, copies of any reports and financial statements furnished or filed
with the Commission or any national securities exchange or automatic quotation
system on which the Units is listed.  However, so long as the Company
is subject to the reporting requirements of either Section 13 or Section 15(d)
of the Exchange Act and is timely filing reports with the Commission on its
Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”), it is not required to
furnish such reports or statements to the Placement Agent.

       

      (k) That the
Company will not, for a period of ninety (90) days from the date of this
Agreement, (the “Lock-Up
Period”) without the prior written consent of LCM, directly or indirectly
offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose
of, any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock, other than the Company’s sale of the Units
hereunder and the issuance of restricted Common Stock or options to acquire
Common Stock pursuant to the Company’s employee benefit plans, qualified stock
option plans or other employee compensation plans as such plans are in existence
on the date hereof and described in the Prospectus and the issuance of Common
Stock pursuant to the valid exercises of options, warrants or rights outstanding
on the date hereof.  The Company will cause each executive officer and
director, and each shareholder listed in SCHEDULE
B to furnish to the Placement
Agent, prior to the date of this Agreement, a letter, substantially in the form
of EXHIBIT
C
hereto, pursuant to which each such person shall agree, among other things, not
to directly or indirectly offer, sell, assign, transfer, pledge, contract to
sell, or otherwise dispose of, or announce the intention to otherwise dispose
of, any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock, not to engage in any swap, hedge or

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

      similar
agreement or arrangement that transfers, in whole or in part, directly or
indirectly, the economic risk of ownership of Common Stock or any such
securities and not to engage in any short selling of any Common Stock or any
such securities, during the Lock-Up Period, without the prior written consent of
LCM.  The Company also agrees that during such period, other than for
the sale of the Units hereunder, the Company will not file any registration
statement, preliminary prospectus or prospectus, or any amendment or supplement
thereto, under the Securities Act for any such transaction or which registers,
or offers for sale, Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, except for a registration
statement on Form S-8 relating to employee benefit plans.  The Company
hereby agrees that (i) if it issues an earnings release or material news, or if
a material event relating to the Company occurs, during the last seventeen (17)
days of the Lock-Up Period, or (ii) if prior to the expiration of the Lock-Up
Period, the Company announces that it will release earnings results during the
sixteen (16)-day period beginning on the last day of the Lock-Up Period, the
restrictions imposed by this paragraph (k) or the letter shall continue to apply
until the expiration of the eighteen (18)-day period beginning on the issuance
of the earnings release or the occurrence of the material news or material
event.  The Company will provide the Placement Agent and each
stockholder subject to the Lock-Up Period with prior notice (in accordance with
Section 15
hereof) of any such announcement that gives rise to an extension of the Lock-Up
Period.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      (p) Not to
take any action prior to the Closing Date which would require the Prospectus to
be amended or supplemented.

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

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

       

      (I) The
Registration Statement is effective under the Securities Act, and no stop order
suspending the effectiveness of any Registration Statement or any part thereof,
preventing or suspending the use of any Base Prospectus, the Prospectus or any
Permitted Free Writing Prospectus or any part thereof shall have been issued and
no proceedings for that purpose or pursuant to Section 8A under the Securities
Act shall have been initiated or threatened by the Commission, and all requests
for additional information on the part of the Commission (to be included or
incorporated by reference in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of the
Placement Agent; and the Rule 462(b) Registration Statement, if any, each Issuer
Free Writing Prospectus (except for a road show), if any, and the Prospectus
shall have been filed with the Commission within the applicable time period
prescribed for such filing by, and in compliance with, the Rules and Regulations
and in accordance with Section 5(I)(a),
and the Rule 462(b) Registration Statement, if any, shall have become effective
immediately upon its filing with the Commission; and, if applicable, FINRA shall
have raised no objection to the fairness and reasonableness of the terms of this
Agreement or the transactions contemplated hereby.

       

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

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

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

       

      (IV) Rutan
& Tucker, LLP shall have furnished to the Placement Agent such counsel’s
written opinion and negative assurance statement, as counsel to the Company,
addressed to the Placement Agent and the Purchasers and dated the Closing Date,
substantially in the form of Exhibit D attached
hereto.

       

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

      (XIII) The
Nasdaq GM shall have approved the Common Stock for listing therein, subject only
to official notice of issuance.

       

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

       

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

       

      (XVI) The
Company shall have executed and delivered the Warrants.

       

      
        
          
          

        

        
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      (XVII) Prior to
the Closing Date, the Company shall have furnished to the Placement Agent such
further information, opinions, certificates (including a Secretary’s
Certificate), letters or documents as the Placement Agent shall have reasonably
requested.

       

      (XVIII) The
Company shall have prepared and filed with the Commission a Current Report on
Form 8-K including as an exhibit thereto this Agreement.

       

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

       

      8. Indemnification
and Contribution.

       

      (I) The
Company shall indemnify and hold harmless the Placement Agent, its affiliates
and each of its and their respective directors, officers, members, employees,
representatives and agents (including, without limitation Lazard Frères &
Co. LLC, (which will provide services to the Placement Agent) and its
affiliates, and each of its and their respective directors, officers, members,
employees, representatives and agents and each person, if any, who controls
Lazard Frères & Co. LLC within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and each person, if any, who controls the
Placement Agent within the meaning of Section 15 of the Securities Act of or
Section 20 of the Exchange Act (collectively the “Placement Agent Indemnified
Parties,” and each a “Placement Agent Indemnified
Party”) against any loss, claim, damage, expense or liability whatsoever
(or any action, investigation or proceeding in respect thereof), joint or
several, to which such Placement Agent Indemnified Party may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
expense, liability, action, investigation or proceeding arises out of or is
based upon (A) any untrue statement or alleged untrue statement of a material
fact contained in any Issuer Free Writing Prospectus, any “issuer information”
filed or required to be filed pursuant to Rule 433(d) of the Rules and
Regulations, any Registration Statement or the Prospectus, or in any amendment
or supplement thereto or document incorporated by reference therein, or
(B)  the omission or alleged omission to state in any Issuer Free
Writing Prospectus, any “issuer information” filed or required to be filed
pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement
or the Prospectus, or in any amendment or supplement thereto or document
incorporated by reference therein, a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (C) any breach of
the representations and warranties of the Company contained herein or the
failure of the Company to perform its obligations hereunder or pursuant to any
law, any act or failure to act, or any alleged act or failure to act, by the
Placement Agent in connection with, or relating in any manner to the Units or
the Offering, and which is included as part of or referred to in any loss,
claim, damage, expense, liability, action, investigation or proceeding arising
out of or based upon matters covered by subclause (A), (B) or (C) above of this
Section 8(I)
(provided that the
Company shall not be liable in the case of any matter covered by this subclause
(C) to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, expense
or  liability resulted primarily from any such act or 

       

      
        
          
          

        

        
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      failure
to act undertaken or omitted to be taken by the Placement Agent through its
gross negligence or willful misconduct), and shall reimburse the Placement Agent
Indemnified Party promptly upon demand for any legal fees or other expenses
reasonably incurred by that Placement Agent Indemnified Party in connection with
investigating, or preparing to defend, or defending against, or appearing as a
third party witness in respect of, or otherwise incurred in connection with, any
such loss, claim, damage, expense, liability, action, investigation or
proceeding, as such fees and expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, expense or liability arises out of or is based upon an untrue
statement or alleged untrue statement in, or omission or alleged omission from
any Registration Statement or the Prospectus, or any such amendment or
supplement thereto, or any Issuer Free Writing Prospectus made in reliance upon
and in conformity with written information furnished to the Company by the
Placement Agent specifically for use therein, which information the parties
hereto agree is limited to the Placement Agent’s Information (as defined in
Section
17).  This indemnity agreement is not exclusive and will be in
addition to any liability, which the Company might otherwise have and shall not
limit any rights or remedies which may otherwise be available at law or in
equity to each Placement Agent Indemnified Party.

       

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

       

      
        
          
          

        

        
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      (III) Promptly
after receipt by an indemnified party under this Section 8 of notice
of the commencement of any action, the indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party under this Section 8, notify
such indemnifying party in writing of the commencement of that action; provided, however, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have under this Section 8 except to
the extent it has been materially prejudiced by such failure; and, provided, further, that the
failure to notify an indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section
8.  If any such action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense of such action with counsel reasonably satisfactory to the
indemnified party (which counsel shall not, except with the written consent of
the indemnified party, be counsel to the indemnifying party).  After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such action, except as provided herein, the indemnifying
party shall not be liable to the indemnified party under Section 8 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense of such action other than reasonable costs of
investigation; provided,
however, that any indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense of such
action but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be at the expense of such indemnified party unless (i) the
employment thereof has been specifically authorized in writing by the Company in
the case of a claim for indemnification under Section 8(I) or Section 0
or  LCM in the case of a claim for indemnification under Section 8(II), (ii)
such indemnified party shall have been advised by its counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party, or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party within a reasonable
period of time after notice of the commencement of the action or the
indemnifying party does not diligently defend the action after assumption of the
defense, in which case, if such indemnified party notifies the indemnifying
party in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of (or, in the case of a failure to diligently defend the action
after assumption of the defense, to continue to defend) such action on behalf of
such indemnified party and the indemnifying party shall be responsible for legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense of such action; provided, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties (in addition to any local counsel), which
firm shall be designated in writing by LCM if the indemnified parties under this
Section 8
consist of 

       

      
        
          
          

        

        
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      any
Placement Agent Indemnified Party or by the Company if the indemnified parties
under this Section
8 consist of any Company Indemnified Parties.  Subject to this
Section 8(III),
the amount payable by an indemnifying party under Section 8 shall
include, but not be limited to, (x) reasonable legal fees and expenses of
counsel to the indemnified party and any other expenses in investigating, or
preparing to defend or defending against, or appearing as a third party witness
in respect of, or otherwise incurred in connection with, any action,
investigation, proceeding or claim, and (y) all amounts paid in settlement of
any of the foregoing.  No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of judgment with respect to any pending or threatened action or any
claim whatsoever, in respect of which indemnification or contribution could be
sought under this Section 8 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party in form and substance reasonably satisfactory to such
indemnified party from all liability arising out of such action or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.  Subject to
the provisions of the following sentence, no indemnifying party shall be liable
for settlement of any pending or threatened action or any claim whatsoever that
is effected without its written consent (which consent shall not be unreasonably
withheld or delayed), but if settled with its written consent, if its consent
has been unreasonably withheld or delayed or if there be a judgment for the
plaintiff in any such matter, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment.  In addition, if at any time an
indemnified party shall have requested that an indemnifying party reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated
herein effected without its written consent if (i) such settlement is entered
into more than forty-five (45) days after receipt by such indemnifying party of
the request for reimbursement, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least thirty (30) days prior to such
settlement being entered into and (iii) such indemnifying party shall not have
reimbursed such indemnified party in accordance with such request prior to the
date of such settlement.

       

      (IV) If the
indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section 8(I) or Section 8(II), then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid, payable or otherwise incurred by such indemnified
party as a result of such loss, claim, damage, expense or liability (or any
action, investigation or proceeding in respect thereof), as incurred, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Placement Agent on the other
hand from the offering of the Units, or (ii) if the allocation provided by
clause (i) of this Section 8(IV) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) of this Section 8(IV) but
also the relative fault of the Company on the one hand and the Placement Agent
on the other with respect to the statements, omissions, acts or failures to act
which resulted in such loss, claim, damage, expense or liability (or any action,
investigation or proceeding in respect thereof) as well as any other relevant
equitable

       

      
        
          
          

        

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

       

      9. Termination.  The
obligations of the Placement Agent and the Purchasers hereunder and under the
Subscription Agreements may be terminated by the Placement Agent, in its
absolute discretion by notice given to the Company prior to delivery of and
payment for the Units if, prior to that time, any of the events described in
Sections 7(IX), 7(X), 7(XI) or 7(XII)
have occurred or if the Purchasers shall decline to purchase the Units for any
reason permitted under this Agreement or the Subscription
Agreements.  The Company hereby acknowledges that in the event that
this Agreement is terminated by the Placement Agent pursuant to the terms
hereof, the Subscription Agreements shall automatically terminate without any
further action on the part of the parties thereto.

       

      
        
          
          

        

        
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      10. Reimbursement
Of Placement Agent’s Expenses.  Notwithstanding
anything to the contrary in this Agreement, if (a) this Agreement shall have
been terminated pursuant to Section 9, (b) the
Company shall fail to tender the Units for delivery to the Purchasers for any
reason not permitted under this Agreement or the Subscription Agreements, (c)
the Purchasers shall decline to purchase the Units for any reason permitted
under this Agreement or (d) the sale of the Units is not consummated because any
condition to the obligations of the Purchasers or the Placement Agent set forth
herein is not satisfied or because of the refusal, inability or failure on the
part of the Company to perform any agreement herein or to satisfy any condition
or to comply with the provisions hereof, then in addition to the payment of
amounts in accordance with Section 6, the
Company shall reimburse the Placement Agent for the fees and expenses of the
Placement Agent’s counsel and for such other out-of-pocket expenses as shall
have been reasonably incurred by them in connection with this Agreement and the
proposed purchase of the Units, including, without limitation, travel and
lodging expenses of the Placement Agent, and upon demand the Company shall pay
the full amount thereof to the Placement Agent, not to exceed
$150,000.

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

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

       

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

       

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

       

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

       

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

       

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

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

       

      17. Placement
Agent’s Information.  The
parties hereto acknowledge and agree that, for all purposes of this Agreement,
the Placement Agent’s Information consists solely of the following information
in the Prospectus:  (i) the last paragraph on the front cover page
concerning the terms of the offering; and (ii) the statements concerning the
Placement Agent contained in the first paragraph under the heading “Plan of
Distribution.”

       

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

       

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

       

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

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

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

       

      Very
truly yours,

       

       

      PACIFIC
ETHANOL, INC.

       

       

      By: __________________________

      Name:

      Title:

       

      Accepted
as of the date

      first
above written:

      

      LAZARD
CAPITAL MARKETS LLC

      

      By: _______________________________

      Name:

      Title:

       

       

       

       

       

       

       

      36

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