Document:

EXHIBIT 10.2

 

THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 8 HEREOF.

 

Pacific Ethanol, Inc.

 

[FORM OF]

 

Senior Unsecured Note

 

	Issuance Date:  [●] [●], 201__	$[●]

 

FOR VALUE RECEIVED, Pacific Ethanol,
Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order of [INVESTOR] or its registered
assigns (“Holder”) the amount set out above (as reduced pursuant to the terms hereof pursuant to redemption
or otherwise, the “Principal”) when due, whether upon the Maturity Date, acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal
(as defined above) at the applicable Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon the Maturity Date, acceleration, redemption or otherwise
(in each case in accordance with the terms hereof). This Senior Unsecured Note (including all Senior Unsecured Notes issued in
exchange, transfer or replacement hereof, this “Note”) is one of an issue of Senior Unsecured Notes issued pursuant
to the Purchase Agreement (as defined below) on the Issuance Date (collectively, the “Notes” and such other
Senior Unsecured Notes, the “Other Notes”). Certain capitalized terms used herein are defined in Section 19.

 

1.                 
PAYMENTS OF PRINCIPAL.

 

1.1             
On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal,
all accrued and unpaid Interest and accrued and all other unpaid amounts hereunder. Any such payment shall be applied pro rata
to the Note and the Other Notes in accordance with the respective Principal amounts thereof.

 

    	 

    	 

    

 

1.2             
The Company may, at its sole option, at any time prepay this Note, without premium or penalty, in whole or in part,
on one Business Day’s prior written notice to the Holder, at a prepayment price equal to the amount of outstanding Principal
so to be prepaid, together with accrued and unpaid Interest on such Principal, if any, through the date of such prepayment. Any
such payment shall be applied pro rata to the Note and the Other Notes in accordance with the respective Principal amounts
thereof.

 

1.3             
Until such time as the outstanding balance of the Note and the Other Notes are paid in full, within three Business
Days of the receipt by the Company of any Net Cash Proceeds or any distributions to which the Company is entitled to with respect
to Net Cash Proceeds received by any Subsidiary arising from any (i) Asset Sale (other than Asset Sales made pursuant to Section 5.6),
(ii) Equity Issuance, (iii) Debt Issuance, or (iv) Property Loss Event, the Company shall prepay the Note and the
Other Notes, ratably in accordance with their respective principal amounts, in an amount equal to 100% of such Net Cash Proceeds
(or that amount necessary to pay the Note and the Other Notes in full); provided, that any such Net Cash Proceeds (or distributions
with respect to Net Cash Proceeds) arising from any Equity Linked Issuance shall, notwithstanding anything to the contrary in this
Section 1.3, be applied as follows:

 

(a)               
until such time as the Company has made prepayments in accordance with this clause (a) in an aggregate amount
equal to $653,895, to the prepayment of the Notes and Other Notes, ratably in accordance with their respective principal amounts;

 

(b)              
after the Company has made all payments required by the foregoing clause (a) and until such time as all 2013
Pacific Holding Debt is owned by the Company or no 2013 Pacific Holding Debt remains outstanding, 100% of such Net Cash Proceeds
shall be applied, as elected by the Company, to either (x) the purchase by the Company of the 2013 Pacific Holding Debt (to
the extent the same is permitted by the terms of the Pacific Holding Credit Facilities) or (y) the prepayment of the Notes
and Other Notes, ratably in accordance with their respective principal amounts; and

 

(c)               
after such time as all 2013 Pacific Holding Debt is owned by the Company or no 2013 Pacific Holding Debt remains
outstanding, the Reduced Percentage of such Net Cash Proceeds shall be applied to the prepayment of the Notes and Other Notes,
ratably in accordance with their respective principal amounts; provided, that no such Net Cash Proceeds shall be applied
to make capital contributions or investments in, or otherwise purchase any Indebtedness, equity interests or Convertible Securities
of any Subsidiary of the Company (provided however, that for purposes of this clause (b), the proviso in the definition of
“Subsidiary” will be disregarded). For the purposes of this Note, the “Reduced Percentage” means
75% until the occurrence of a Threshold Balance Reduction, and 50% thereafter.

 

Until such time
as the outstanding balance of the Note and the Other Notes has been paid in full, within three Business Days of the receipt by
the Company of any payment of principal or interest on the Specified A-2 Debt (collectively, “Debt Repayment Amounts”),
the Company shall prepay the Note and the Other Notes, pro rata in accordance with the respective Principal amounts thereof,
in an amount equal to such Debt Repayment Amounts.

 

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2.                 
INTEREST; INTEREST RATE.

 

2.1             
Interest on this Note shall accrue at the applicable Interest Rate and shall commence accruing on the Issuance Date
and Interest shall be computed on the basis of a 360-day year and twelve 30-day months and, subject to Section 2.2 below,
shall be payable in cash to the record Holder in arrears on the 15th day of each calendar month, beginning with
March 15, 2013 and on the Maturity Date (each such date, an “Interest Date”). From and after the occurrence
and during the continuance of any Event of Default, the applicable Interest Rate shall automatically be increased by two percent
(2%) per annum above the Interest Rate otherwise applicable in accordance with terms hereof, and all such interest shall be
payable on demand. In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence
shall cease to be effective as of the date of such cure, provided that the Interest as calculated and unpaid at such increased
rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence
of such Event of Default through and including the date of such cure of such Event of Default.

 

2.2             
Notwithstanding the terms of Section 2.1, the Company, may elect, by providing written notice to the Holder
as described herein, to pay Interest due and payable on any Interest Date in shares of Common Stock (“Interest Shares”)
so long as there has been no Equity Conditions Failure (which election must apply to the holders of all of the Other Notes); provided,
however, that the Interest Rate applicable to any outstanding amounts that the Company pays in Interest Shares shall be
deemed to have been automatically increased by two percent (2%) per annum for the duration of the period for which such Interest
is so paid. For any Interest Date on which the Company elects to pay Interest in Interest Shares in lieu of in cash, the Company
shall deliver a written notice (each, an “Interest Election Notice”) to each holder of the Notes on or prior
to the applicable Interest Notice Due Date (the date such notice is delivered to all of the holders of Notes, the “Interest
Notice Date”) which notice (i) specifies the Company’s election to pay Interest on such Interest Date entirely
in Interest Shares, and (ii) certifies that there has been no Equity Conditions Failure as of such Interest Notice Date. If
there is an Equity Conditions Failure as of the Interest Notice Date, the Interest Notice shall indicate that unless the Holder
waives the Equity Conditions Failure, the Interest shall be paid in cash. If the Company elects for payment of the applicable Interest
in Interest Shares and if the Equity Conditions were satisfied as of the applicable Interest Notice Date but an Equity Conditions
Failure occurred between the applicable Interest Notice Date and any time prior to the applicable Interest Date, the Company shall
provide the Holder a subsequent notice to that effect indicating that unless the Holder waives the Equity Conditions Failure, the
Interest shall be paid in cash. If the Equity Conditions are not satisfied (and the Equity Conditions Failure is not waived in
writing by the Holder) during such period then, unless the Holder notifies the Company to the contrary in writing prior to the
Business Day immediately preceding the Interest Date, the amount of Interest payable on the applicable Interest Date shall be paid
in cash. Interest to be paid on an Interest Date in Interest Shares shall be paid in a number of fully paid and nonassessable shares
(rounded to the nearest whole share) of Common Stock equal to the quotient of (1) the amount of Interest payable (assuming
payment in Interest Shares) on such Interest Date, and (2) the product of (x) the average Weighted Average Price of the
Common Shares for the thirty (30) Trading Days immediately preceding (but excluding) the Interest Date and (y) 0.95.

 

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2.3             
When any Interest Shares are to be paid on an Interest Date, the Company shall, on the applicable Interest Date (i) if
the Company’s transfer agent (the “Transfer Agent”) is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program, credit such aggregate number of Interest Shares to which the Holder is entitled to
the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal At Custodian system, or (ii) if
the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver, to the address
of such Holder set forth in the Securities Purchase Agreement or to such address as specified by the Holder in writing to the Company
at least two (2) Business Days prior to the applicable Interest Date, a certificate, registered in the name of the Holder
or its designee, for the number of Interest Shares to which the Holder shall be entitled. With respect to Interest payable in cash
on each Interest Date, the Company shall pay to the Holder, in cash by wire transfer of immediately available funds, the amount
of any such Interest payable in cash.

 

3.                 
RIGHTS UPON EVENT OF DEFAULT.

 

3.1             
Event of Default. Each of the following events shall constitute an “Event of Default”:

 

(a)               
the Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as
due under this Note or any other agreement, document, certificate or other instrument delivered in connection with the transactions
contemplated hereby and thereby, except, in the case of a failure to pay Interest or other non-Principal amounts when and as due,
in which case only if such failure remains uncured for a period of at least five (5) days;

 

(b)              
bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors
shall be instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third
party, shall not be dismissed within sixty (60) days of their initiation;

 

(c)               
the commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal,
state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated
a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts,
or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability
to pay its debts generally as they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of
any such action or the taking of any action by any Person to commence a UCC foreclosure sale or any other similar action under
federal, state or foreign law or of any substantial part of the Company’s property or any substantial part of any Subsidiary’s
property;

 

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(d)              
the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or
any Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law
or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document
or any such other decree, order, judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive
days;

 

(e)               
a final judgment, judgments, any arbitration or mediation award or any settlement of any litigation or any other
satisfaction of any claim made by any Person pursuant to any litigation, as applicable, (each a “Judgment”,
and collectively, the “Judgments”) with respect to the payment of cash, securities and/or other assets with
an aggregate fair market value in excess of $2,000,000 are rendered against, agreed to or otherwise accepted by, the Company and/or
any of its Subsidiaries and which Judgments are not, within thirty (30) days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however,
any Judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,000,000 amount set forth above so long as the Company provides the Holder written evidence of such insurance coverage or indemnity
(which evidence shall be reasonably satisfactory to the Holder) to the effect that such Judgment is covered by insurance or an
indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity prior
to the later of (i) thirty (30) days after the issuance of such Judgment or (ii) any requirement to pay such Judgment;

 

(f)               
the Company and/or any Subsidiary, individually or in the aggregate, fails to pay, when due, or within any applicable
grace period, any payment with respect to any Indebtedness in excess of $2,000,000 due to any third party or is otherwise in breach
or violation of any agreement for monies owed or owing in an amount in excess of $2,000,000, which breach or violation permits
the other party thereto to accelerate amounts due thereunder;

 

(g)              
any breach or failure in any respect by the Company to comply with any provision of Section 5 of this Note;
provided that if such breach or failure is not material or is otherwise inadvertent or unintentional, then no Event of Default
shall occur unless such breach or failure is not cured within thirty (30) days of written notice from the Required Holders
to the Company;

 

(h)              
any Material Adverse Change occurs (other than any Excluded Event) and is not otherwise cured within thirty (30) days
of written notice thereof by the Required Holders;

 

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(i)                
any provision of any Transaction Document (shall at any time for any reason (other than pursuant to the express terms
thereof) cease to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof
shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any Subsidiary or any governmental
authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Company
or any Subsidiary shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document
to which it is a party;

 

(j)                
any Fundamental Transaction occurs without the written consent of the Required Holders; or

 

(k)              
any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes.

 

Upon the occurrence of an Event of Default
with respect to this Note or any Other Note, the Company shall promptly deliver written notice thereof via facsimile and overnight
courier (with next day delivery specified) (an “Event of Default Notice”) to the Holder.

 

Notwithstanding anything
to the contrary set forth above or elsewhere herein, the following Indebtedness and obligations, and any defaults with respect
thereto, shall not constitute an Event of Default under Section 3.1(f) above: (i) any payments contested by the Company
and/or such Subsidiary (as the case may be) in good faith by proper proceedings and with respect to which adequate reserves have
been set aside for the payment thereof in accordance with GAAP and, with respect to any subsidiary, such default is otherwise resolved
in a manner which does not result in a Material Adverse Change; (ii) with respect to any Subsidiary, any default with respect
to a non-recourse obligation and such default does not otherwise result in a Material Adverse Change; and (iii) any default
with respect to any previously accrued and unpaid dividends with respect to the Company’s Series B Cumulative Convertible
Preferred Stock outstanding as of the Issuance Date.

 

3.2             
If an Event of Default (other than an Event of Default specified in Section 3.1(b), (c) or (d) above) occurs,
then the Holder may, by written notice to the Company, declare this Note to be forthwith due and payable, as to Principal, Interest
and any other amounts due hereunder, whereupon this Note shall become forthwith due and payable, without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived by the Company. If any Event of Default specified in Section 3.1(b),
(c) or (d) above occurs, the Principal of and accrued Interest on this Note shall automatically forthwith become due and payable
without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Company.

 

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3.3             
If any Event of Default occurs and is continuing, the Holder may pursue any available remedy to collect the payment
of Principal, Interest and any other amounts due under this Note or to enforce the performance of any provision of this Note. If
an Event of Default occurs and is continuing, the holder of this Note may proceed to protect and enforce its rights by an action
at law, suit in equity or other appropriate proceeding. No course of dealing and no delay on the part of the holder of this Note
in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers
or remedies. No right, power or remedy conferred by this Note upon the holder hereof shall be exclusive of any other right, power
or remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise.

 

4.                 
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 Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may
be required to protect the rights of the Holder of this Note.

 

5.                 
COVENANTS. Until all of the Notes have been redeemed or otherwise satisfied in accordance with their terms:

 

5.1             
Rank. All payments due under this Note (a) shall rank pari passu with all Other Notes and
(b) shall be senior to all other Indebtedness of the Company (excluding any other Permitted Indebtedness of the Company).

 

5.2             
Incurrence of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness (other than (i) the Indebtedness
evidenced by this Note and the Other Notes and (ii) Permitted Indebtedness).

 

5.3             
Existence of Liens. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted
Liens.

 

5.4             
Restricted Payments. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents
(in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion
of any Indebtedness (other than Permitted Payments with respect to any Permitted Subsidiary Indebtedness), whether by way of payment
in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise
made or, after giving effect to such payment, (i) an event constituting an Event of Default has occurred and is continuing
or (ii) an event that with the passage of time and without being cured would constitute an Event of Default has occurred and
is continuing.

 

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5.5             
Restriction on Redemption and Cash Dividends. Except for any Permitted Distributions or to otherwise effect
payments required by Section 1.3 above in accordance with the Note, the Company shall not, and the Company shall cause each
of its Subsidiaries to not, directly or indirectly, redeem, repurchase or pay any cash dividend or distribution on any of its capital
stock without the prior express written consent of the Holder.

 

5.6             
Restriction on Transfer of Assets. The Company shall not, and the Company shall cause each of its Subsidiaries
to not, directly or indirectly, sell, lease, license, assign, transfer, convey or otherwise dispose of any assets or rights of
the Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions,
other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights
by the Company and its Subsidiaries that are in the ordinary course of their respective businesses and, after giving effect thereto,
would not result in a Material Adverse Change; provided that so long as the Net Cash Proceeds with respect thereto exceed
$200,000, such Net Cash Proceeds are applied in accordance with Section 1.3 above, (ii) sales of product, inventory or
receivables in the ordinary course of business, (iii) Permitted Payments or (iv) the sale, leasing, licensing, assignment,
transfer, conveyance or other disposition of any assets or rights of any Subsidiary to the extent permitted under the Kinergy Credit
Facility or the Pacific Holding Credit Facilities.

 

5.7             
Change in Nature of Business. The Company shall not, and the Company shall cause each of its Subsidiaries
to not, directly or indirectly, engage in any material line of business substantially different from those lines of business conducted
by the Company and each of its Subsidiaries on the Issuance Date or any business substantially related or incidental thereto. The
Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, modify its or their corporate
structure or purpose in any material respect.

 

5.8             
Preservation of Existence, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries
to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become
or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by
it or in which the transaction of its business makes such qualification necessary.

 

5.9             
Maintenance of Properties, Etc. The Company shall maintain and preserve in all material respects, and
cause each of its Subsidiaries to maintain and preserve in all material respects, all of its properties which are necessary or
useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply,
and cause each of its Subsidiaries to comply, at all times with the provisions of all material leases to which it is a party as
lessee or under which it occupies property, so as to prevent any material loss or forfeiture thereof or thereunder.

 

5.10         
Maintenance of Insurance. The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance
with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability,
hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned
by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly
situated.

 

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5.11         
Investments. Except for any Permitted Investments, the Company shall not, and the Company shall cause each
of its Subsidiaries to not, directly or indirectly, lend money or credit (by way of guarantee or otherwise) or make advances to
any Excluded Subsidiary, or purchase or acquire any stock, bonds, notes, debentures or other obligations or securities of, or any
other interest in, or make any capital contribution to, any Excluded Subsidiary.

 

6.                 
AMENDING THE TERMS OF THIS NOTE. No provision of this Note may be modified or amended without the prior written consent
of the Required Holders and the Company and upon such due modification or amendment, such modification or amendment shall apply
to the Note and all of the Other Notes; provided, however, that (a) no such modification or amendment shall,
without the consent of the Holder hereunder, change the stated maturity date of this Note, or reduce the principal amount hereof,
or reduce the rate or extend the time of payment of any interest hereon, modify the terms of payment of Interest Shares hereunder,
or reduce any amount payable on redemption or prepayment hereof, or impair or affect the right of the Holder to receive payment
of principal of, and interest on, the Notes or to institute suit for payment thereof, or impair or affect the right of the Holder
to receive any other payment provided for under this Note and (b) the Holder hereunder may waive, reduce or excuse, or forbear
from the exercise of any rights and remedies with respect to, any Event of Default under this Note without notice to or the consent
of any holder of any of the Other Notes.

 

7.                 
TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder in whole or in part, subject only
to the provisions of the restrictive legend set forth at the top of the first page of this Note; provided that, so long
as no Event of Default has occurred and is continuing, any such sale, assignment or transfer shall be subject to the prior written
consent of the Company, which consent shall not be unreasonably withheld, delayed or conditioned; provided, further,
that any partial offer, sale, assignment or transfer of this Note shall be in a principal amount not less than $2,500,000.

 

8.                 
REISSUANCE OF THIS NOTE.

 

8.1             
Transfer. If this Note is to be transferred as permitted under Section 7 above, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance
with Section 8.3), registered as the Holder may request.

 

8.2             
Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification
contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking
by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of
this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 8.3) representing the
outstanding Principal.

 

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8.3             
Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this
Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such
new Note, the Principal remaining outstanding, (iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued and unpaid Interest on the Principal and Interest of this Note, from the Issuance Date.

 

9.                 
REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note
shall be cumulative and in addition to all other remedies available under this Note at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual
and consequential damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder
that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm
to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event
of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. The
Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm
the Company’s compliance with the terms and conditions of this Note (including, without limitation, compliance with Section 5).

 

10.             
PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note,
then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such
bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements.

 

11.             
CONSTRUCTION; HEADINGS. This Note 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 Note are for convenience of reference and shall not
form part of, or affect the interpretation of, this Note. Terms used in this Note but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Issuance Date in such other Transaction Documents unless otherwise consented
to in writing by the Holder.

 

    	10

    	 

    

 

12.             
FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving party.

 

13.             
NOTICES; CURRENCY; PAYMENTS.

 

13.1         
Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice
shall be given in accordance with Section 6.5 of the Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the
reason therefore.

 

13.2         
Currency. All principal, interest and other amounts owing under this Note that, in accordance with the terms
hereof, are paid in cash shall be paid in U.S. dollars. All amounts denominated in other currencies shall be converted to
the U.S. dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate”
means, in relation to any amount of currency to be converted into U.S. dollars pursuant to this Note, the U.S. dollar
exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that
where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of
such period of time).

 

13.3         
Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless
otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by wire transfer
of immediately available funds in accordance with the Holder’s wire transfer instructions. Whenever any amount expressed
to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding
day which is a Business Day.

 

14.             
DISCLOSURE.

 

14.1         
In connection with information that is either required or permitted to be disclosed to the Holder, whether in such
Holder’s capacity as the holder of this Note, a lender under the Pacific Holding Credit Facilities or as a member of New
PE Holdco, on the date such information is to be disclosed, the Company, the borrowers under the Pacific Holding Credit Facilities
or the manager of New PE Holdco (as the case may be, each a “Reporting Party”), may provide the Holder
with such information; provided either that (i) such information does not contain Non-Public Information, or (ii) if such
information does contain Non-Public Information, such information is Consented Information (as defined below).

 

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14.2         
If any such information to be disclosed contains Non-Public Information, the Company shall, or shall cause the Reporting
Party to, provide to the Holder a written notice (which notice shall, for the avoidance of doubt, not contain or constitute Non-Public
Information), containing the following information: (A) a statement as to whether the information is required to be disclosed
under the terms of this Note, the Pacific Holding Credit Facilities and/or the Limited Liability Company Agreement of New PE Holdco
(the “Operating Agreement”), as applicable, (B) if the information is not so required to be disclosed,
a statement that the Reporting Party desires voluntarily to disclose such information, (C) a general description of such information
(which description shall not include, and shall not constitute, Non-Public Information), (D) a statement as to whether the
Holder is required or permitted to take some specific action as a lender under this Note, a lender under the Pacific Holding Credit
Facilities and/or as holder of membership interests in New PE Holdco, (E) a statement that such information contains Non-Public
Information, and (F) a statement seeking the consent of the Holder to receive such Non-Public Information. Within two (2)
Business Days of the date of the notice contemplated in the preceding sentence, the Holder shall advise the Company and the Reporting
Party (if the Company is not the Reporting Party) in writing whether it consents to the receipt of such Non-Public Information
(any information for which such consent is provided, “Consented Information”).

 

14.3         
In the case of Non-Public information that the Reporting Party is required to disclose to the Holder under the terms
of the Pacific Holding Credit Facilities, the Reporting Party shall post it to the data site (the “Electronic Data
Site”) established for such purposes as a non-public document and upon such posting, the Reporting Party shall be
deemed to have discharged its obligation to provide such information to the Holder whether or not the Holder is then subscribed
to receive such data site information (such information posted after the Issuance Date, “Privately Posted Information”).

 

14.4         
In the event any Non-Public Information is provided to the Holder by any Reporting Party other than as Privately
Posted Information, the Company shall promptly and in compliance with applicable law publicly disclose such Non-Public Information
on a Current Report on Form 8-K or otherwise, within 4 Business Days of (or such other period of time as may be expressly agreed
to in writing by the Investor and the Company in connection with such disclosure) the disclosure thereof to the Holder. If the
Company fails to disclose any Non-Public Information in accordance with the immediately preceding sentence, the Holder may publicly
disclose such information by issuing a press release containing such information, or otherwise, within one Business Day of providing
Notice to the Company of such intended disclosure. For the avoidance of doubt, the Company shall not be required to so publicly
disclose any Privately Posted Information except to the extent it has disclosed such information to the Holder other than by posting
such information as a non-public document on the Electronic Data Site.

 

14.5         
In no event shall any Reporting Party intentionally provide the Holder with any Non-Public Information without the
prior written consent of the Holder, it being agreed that the posting of Non-Public Information to the Electronic Data Site shall
not be deemed to violate the foregoing restriction. In the absence of any written notice that information provided by the Company
contains Non-Public Information, the Holder may presume that such information (including the notice of such information) does not
constitute Non-Public Information.

 

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14.6         
Nothing contained herein shall prevent or prohibit any Reporting Party from delivering any notices, documents and
other information as and when required under the Pacific Holding Credit Facilities and/or the Operating Agreement to any person
(other than the Holder) who is entitled to such information, including without limitation, the administrative agent, collateral
agent and accounts bank under each of the Pacific Holding Credit Facilities.

 

14.7         
It is hereby understood and agreed that each Reporting Party is an intended third party beneficiary of this Section 14.

 

15.             
CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid
in full (a) this Note shall automatically be deemed canceled without any action by or notice to Holder or Company and (b) Holder
shall promptly mark this Note as cancelled, shall promptly surrender this Note to the Company and this Note shall not be reissued.

 

16.             
WAIVER OF NOTICE. Except for the notices specifically required by this Note or any other Transaction Document, to
the extent permitted by applicable law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other
demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Purchase
Agreement.

 

17.             
GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note 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. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision of this Note is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith
and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction
to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations,
or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING
OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

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18.             
MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest
or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid
or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.

 

19.             
CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:

 

19.1         
“2013 Pacific Holding Debt” means any issued and outstanding Indebtedness of any of the Company’s
indirect subsidiaries under the Pacific Holding Restated Credit Facility for which the “Maturity Date” (as defined
therein) occurs in the 2013 calendar year. For the avoidance of doubt, any issued and outstanding Indebtedness of any of the Company’s
indirect subsidiaries under the Pacific Holding Restated Credit Facility that is (x) an “Extended Loan” or (y) held
by an “Extending Lender” (as each such term is defined in the Amended and Restated Loan Agreement evidencing the Pacific
Holding Restated Credit Facility) or under the Pacific Holding Priming Credit Facility shall be excluded from the definition of
“2013 Pacific Holding Debt”.

 

19.2         
“Asset Sale” means any sale, transfer, lease, conveyance or other disposition of any asset or
property.

 

19.3         
“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.

 

19.4         
“Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per
share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from
a reclassification of such common stock.

 

19.5         
“Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent
or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary
purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee
of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with,
or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

 

19.6         
“Convertible Securities” means any capital stock or other security that is at any time and under
any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder
thereof to acquire, any shares of Common Stock.

 

19.7         
“Debt Issuance” means the incurrence of Indebtedness of the type specified in clauses (A)
or (D) of the definition of “Indebtedness” by the Company or any of its Subsidiaries.

 

19.8         
“Eligible Market” means any of The New York Stock Exchange, The NYSE Amex LLC, the Principal Market,
The NASDAQ Global Market or The NASDAQ Global Select Market.

 

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19.9         
“Equity Conditions” means each of the following conditions: (i) either (x) the applicable
Registration Statement filed pursuant to the Registration Rights Agreement shall be effective and the prospectus contained therein
shall be available for the resale by the Holder of all of the Interest Shares proposed to be issued and any Interest Shares previously
issued in accordance with the terms of the Registration Rights Agreement and the Company shall have no knowledge of any fact that
would reasonably be expected to cause the applicable Registration Statement required to be filed pursuant to the Registration Rights
Agreement to not be effective or the prospectus contained therein to not be available for the resale of at least all of the Interest
Shares proposed to be issued and any Interest Shares previously issued in accordance with the terms of the Registration Rights
Agreement or (y) all Interest Shares proposed to be issued and any Interest Shares previously issued shall be eligible for
resale by the Holder without restriction under Rule 144 (including, without limitation, volume restrictions) and without the
need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and without the need
for registration under any applicable federal or state securities laws, and the Company shall have no knowledge of any fact that
would cause all Interest Shares proposed to be issued and any Interest Shares previously issued not to be eligible for resale without
restriction pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or Rule 144(i)(2),
if applicable) promulgated under the Securities Act of 1933 and any applicable state securities laws; (ii) (A) the Common
Stock is designated for quotation on the Principal Market or any other Eligible Market and shall not have been suspended from trading
on such exchange or market (other than suspensions of not more than two (2) days and occurring prior to the applicable date
of determination due to business announcements by the Company) and (B) no delisting or suspension by such exchange or market
is pending or threatened in writing by such exchange or market (provided, however, that with respect to this clause (B),
until June 3, 2013, the pending or threatened delisting of the Company as a result of the failure to maintain a $1.00 minimum
share price shall be disregarded); (iii) the Company shall have delivered shares of Common Stock constituting the payment
of any Interest Shares to the holders on a timely basis as set forth in Section 2.3 hereof (and analogous provisions under
the Other Notes); (iv) any applicable shares of Common Stock to be issued in connection with the event requiring determination
may be issued in full without violating the rules or regulations of the Principal Market or any other applicable Eligible Market;
(v) the Company shall not have failed to timely make any payments within five (5) Business Days of when such payment
is due pursuant to any Transaction Document; (vi) there shall not have occurred either (A) the public announcement of
a pending, proposed or intended Fundamental Transaction which has not been abandoned, terminated or consummated, (B) an Event
of Default or (C) an event that with the passage of time or giving of notice would constitute an Event of Default; (vii) the
Company otherwise shall have been in compliance with and shall not have breached any provision, covenant, representation or warranty
of any Transaction Document; (viii) the shares of Common Stock issued as Interest Shares shall be duly authorized; (ix) the
Holder shall not have provided the Company with notice prior to the applicable date of determination (and the Company shall not
otherwise have actual knowledge) that such Holder would become the “beneficial owner” of more than the Applicable Percentage
of the Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934
Act”)) if the applicable shares of Common Stock to be issued in connection with the event requiring determination were
issued in full to such Holder; (x) the sum of (a) the aggregate number of Interest Shares contemplated to be issued as
Interest Shares under this Note and all Other Notes, (b) any Interest Shares previously issued pursuant to the terms of this
Note and the Other Notes, and (c) the aggregate number of Warrant Shares (as defined in the Purchase Agreement) that may be
issued pursuant to the exercise of all Warrants (as defined in the Purchase Agreement) purchased pursuant to the Purchase Agreement
is less than 19.99% of the total number of shares of Common Stock outstanding on the Issuance Date unless the Company has obtained
either (A) stockholder approval for the issuance of more than such number of shares of Common Stock pursuant to NASDAQ Listing
Rule 5635(d) or (B) a waiver from NASDAQ of compliance with Rule 5635(d) and (xi) no Holder shall be in possession
of any Non-Public Information (other than Consented Information and Privately Posted Information obtained by the Holder as a result
of its subscription to the Electronic Datasite) received from the Company, any Subsidiary, any Excluded Subsidiary or their respective
agents or affiliates. “Applicable Percentage” as used in this definition means 4.99% unless the Holder shall
have provided notice in writing to the Company indicating that it elects to have the Applicable Percentage increased to an amount
not to exceed 9.99%.

 

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19.10     
“Equity Conditions Failure” means that on any day during the period commencing five (5) Trading
Days prior to the applicable date of determination through the applicable date of determination, the Equity Conditions have not
been satisfied (or waived in writing by the Holder).

 

19.11     
“Equity Issuance” means the issuance or sale by the Company of any stock or other equity interests
of the Company to any Person.

 

19.12     
“Equity Linked Issuance” means any Equity Issuance or any issuance or sale by the Company to any
Person of any options, warrants or other securities or rights to subscribe to or exercisable for the purchase of stock or other
equity interest, or any Convertible Securities, of the Company or any notes or other evidence of Indebtedness with respect to which
payment (with respect to principal, interest or other consideration) is calculated by reference to the capital stock of the Company
or any other securities which give another Person the right to receive any economic benefit or right similar to or derived from
the economic benefits and rights accruing to the holders of shares of capital stock of the Company.

 

19.13     
 “Excluded Events” means (i) changes in the national or world economy or financial markets
as a whole, (ii) changes in general economic conditions taken as a whole that affect the industries in which the Company and
its Subsidiaries conduct their business, (iii) acts of terrorism or war, including the engagement by the United States of
America or any other country in hostilities, and whether or not pursuant to the declaration of a national emergency or war, or
any earthquakes, hurricanes or other natural disasters, (iv) any financial statement impact of the transactions contemplated
by the Transaction Documents.

 

19.14     
“Excluded Subsidiaries” means New PE Holdco LLC, a Delaware limited liability company, Pacific
Ethanol Holding Co. LLC, a Delaware limited liability company, Pacific Ethanol Madera LLC, a Delaware limited liability company,
Pacific Ethanol Columbia, LLC, a Delaware limited liability company, Pacific Ethanol Stockton, LLC, a Delaware limited liability
company, and Pacific Ethanol Magic Valley, LLC, a Delaware limited liability company.

 

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19.15     
“Fundamental Transaction” means that (A) the Company or any of its Subsidiaries shall, directly
or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company or any
of its Subsidiaries is the surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company or any of its Subsidiaries 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 50% of
the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company 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 securities purchase or 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 Voting Stock of the Company (not including any shares of Voting Stock of the Company 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 securities
purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify the Voting Stock of the Company
or (B) 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 Voting Stock of the Company.

 

19.16     
 “GAAP” means United States generally accepted accounting principles, consistently applied.

 

19.17     
“Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing,
in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property),
(F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting
principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred
to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any mortgage, claim, lien, tax, right of first refusal, encumbrance, pledge, charge, security interest
or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though
the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through
(G) above.

 

    	17

    	 

    

 

19.18     
“Interest Notice Due Date” means the third (3rd) Trading Day prior to the applicable
Interest Date.

 

19.19     
“Interest Rate” means five percent (5%) per annum, provided, that commencing on January 15,
2014, if the Threshold Balance Reduction has not occurred, the “Interest Rate” shall be automatically increased by
one percent (1%) per annum on each calendar January 15, April 15, July 15 and October 15 until the Threshold
Balance Reduction occurs (by way of example, assuming the Threshold Balance Reduction has not occurred and no other adjustments
of the Interest Rate hereunder are applicable, the Interest Rate on July 16, 2014, would be eight percent (8%) per annum).
The “Interest Rate” shall in all cases be subject to adjustment as set forth in Section 2.

 

19.20     
“Kinergy Credit Facility” means that certain credit facility as evidenced by, among other loan
documents, that certain Amended and Restated Loan and Security Agreement, dated as of May 4, 2012, by and between Kinergy Marketing,
LLC and Pacific AG. Products, LLC as borrowers thereunder and Wells Fargo Capital Finance, LLC as Agent, and Wells Fargo Capital
Finance, LLC as Sole Lead Arranger, Manager and Bookrunner, as such credit facility is in effect on the date hereof.

 

19.21     
“Material Adverse Change” shall mean any set of circumstances or events which occur, arise or
otherwise take place from and after the Issuance Date which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Note or any other Transaction Document, (b) is or could reasonably
be expected to be material and adverse to the business properties, assets, financial condition, results of operations or prospects
of the Company or the Company and any of Subsidiaries on a collective basis, (c) impairs materially or could reasonably be
expected to impair materially the ability of the Company to duly and punctually pay or perform any its obligations under this Note
or any other Transaction Document, or (d) materially impairs or could reasonably be expected to materially impair the ability
of Holder, to the extent permitted, to enforce its legal rights and remedies pursuant to this Note or any other Transaction Document.

 

19.22     
“Maturity Date” shall mean March 30, 2016.

 

 

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19.23     
“Net Cash Proceeds” means, as applicable, (a) with respect to any Asset Sale by the Company
or any Subsidiary, the gross cash proceeds received by the Company or any of its Subsidiaries therefrom less the sum of (i) all
income taxes and other taxes paid to, or reasonably expected to be paid to, a governmental authority as a result of such sale and
any other fees and expenses incurred in connection with such sale, (ii) the principal amount of, premium, if any, and interest
on any Indebtedness secured by a Lien on the asset (or a portion thereof) sold and (iii) the reasonable, ordinary and customary
costs of such Asset Sale, including without limitation, any third party fees, commissions, charges and expenses, including without
limitation, any legal fees and costs, sales commissions and escrow fees, costs and charges, (b) with respect to any Equity
Issuance, Equity Linked Issuance or Debt Issuance, the gross cash proceeds received by the Company therefrom less the sum of all
legal, underwriting and other fees and expenses incurred in connection therewith, and (c) with respect to any Property Loss
Event, the gross cash proceeds received by the Company or any of its Subsidiaries therefrom less the sum of (i) all fees and
expenses in connection therewith, (ii) the principal amount of, premium, if any, and interest on any Indebtedness secured
by a Lien on the asset (or portion thereof) subject to such Property Loss Event, which Indebtedness is required to be repaid in
connection therewith and incremental income taxes paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing agreements), and (iii) that portion thereof used to repair or otherwise replace,
or pay or reimburse any losses or expenses related to, the property which is the subject of such Property Loss Event.

 

19.24     
“Non-Public Information” means material, non-public information relating to the Company.

 

19.25     
“Pacific Holding Credit Facilities” means the Pacific Holding Priming Credit Facility and Pacific
Holding Restated Credit Facility.

 

19.26     
“Pacific Holding Priming Credit Facility” means that certain credit facility as evidenced by,
among other loan documents, that certain Credit Agreement dated as of October 29, 2012 among Pacific Ethanol Holding Co. LLC,
a Delaware limited liability company, as a borrower thereunder and as agent for borrowers thereunder, and co-borrowers Pacific
Ethanol Madera LLC, a Delaware limited liability company, Pacific Ethanol Columbia, LLC, a Delaware limited liability company,
Pacific Ethanol Stockton LLC, a Delaware limited liability company, and Pacific Ethanol Magic Valley, LLC, a Delaware limited liability
company, each of the lenders thereunder who are from time to time signatories thereto, Wells Fargo Bank, N.A., as administrative
agent and collateral agent for such lenders and such other parties thereto as identified therein, as such credit facility may have
been or may be amended, restated or otherwise modified from time to time.

 

 

    	19

    	 

    

 

19.27     
“Pacific Holding Restated Credit Facility” means that certain credit facility as evidenced by,
among other loan documents, that certain Second Amended and Restated Credit Agreement dated as of October 29, 2012 among Pacific
Ethanol Holding Co. LLC, a Delaware limited liability company, as a borrower thereunder and as agent for borrowers thereunder,
and co-borrowers Pacific Ethanol Madera LLC, a Delaware limited liability company, Pacific Ethanol Columbia, LLC, a Delaware limited
liability company, Pacific Ethanol Stockton LLC, a Delaware limited liability company, and Pacific Ethanol Magic Valley, LLC, a
Delaware limited liability company, each of the lenders thereunder who are from time to time signatories thereto, Wells Fargo Bank,
N.A., as administrative agent and collateral agent for such lenders and such other parties thereto as identified therein, as such
credit facility may have been or may be amended, restated or otherwise modified from time to time.

 

19.28     
“Permitted Distributions” means (a) dividends by Subsidiaries of the Company to the Company
or other Subsidiaries of the Company, and (b) current quarterly dividends required to be paid by Company with respect to the
Company’s Series B Cumulative Convertible Preferred Stock pursuant to the organizational documents of the Company as
in effect as of the Issuance Date on the Company. For the avoidance of doubt, to the extent that payment thereof is in the form
of Common Stock, payment of previously accrued and unpaid dividends with respect to the Company’s Series B Cumulative
Convertible Preferred Stock outstanding as of the Issuance Date shall be deemed to be “Permitted Distributions”.

 

19.29     
 “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and the Other Notes;
(ii) Permitted Subsidiary Indebtedness, (iii) any Indebtedness secured by a Permitted Lien (other than any Indebtedness
referred to in clause (iv) of the definition of “Permitted Lien”), (iv) Indebtedness incurred by the Company that
is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Holder and approved by the Holder in writing, and which Indebtedness does not provide at any time for (1) the
payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon
until ninety-one (91) days after the Maturity Date or later and (2) total interest and fees at a rate in excess of ten
percent (10%) per annum (collectively, the “Subordinated Indebtedness”), (v) Indebtedness existing
on the Issuance Date; provided, that the principal amount of such Indebtedness is not increased by more than five percent
(5%) in the aggregate, the terms of such Indebtedness are not modified to impose more burdensome terms upon the Company or
any of its Subsidiaries and the terms of such Indebtedness are not materially changed in any manner that adversely affects the
Holder or any of the Buyers, (vi) any Contingent Obligation with respect to the Kinergy Credit Facility or otherwise required
to be incurred by the Company in order for any of its Subsidiaries to obtain any bonds or letters of credit required in connection
with the continued operation of such Subsidiary’s business; provided that such Contingent Obligation shall not exceed
$750,000 in the aggregate at any time and (vii) such other trade and operating Indebtedness incurred in the ordinary course
of business by the Company, including without limitation, unsecured trade debt, financing with respect to the acquisition or lease
of equipment and financing of insurance premiums; provided that in the aggregate, such Indebtedness does not exceed the
greater of $2,000,000 or three-quarters of one percent (0.75%) of total assets as reported in the Company’s most recent publicly
filed Form 10-K or 10-Q reports.

 

    	20

    	 

    

 

19.30     
“Permitted Investments” means (i) purchases of the Specified A-2 Debt in accordance with
the Purchase Agreement, (ii) purchase of equity interests in New PE Holdco LLC and (iii) any transfer of funds from any
Subsidiary to any Excluded Subsidiary by way of a loan, advance, guarantee, capital contribution or otherwise, provided
that any such transfers and in an amount necessary and are promptly used: (A) for general
working capital purposes and/or (B) to service interest payments due and payable on the “Revolving Loans” as defined
in the Pacific Holdings Restated Credit Facility.

 

19.31     
“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested
in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other
similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that
are being contested in good faith by appropriate proceedings, (iv) Liens securing financing obtained in the ordinary course
of the Company's operations, including financing with respect to the acquisition or lease of equipment and financing of insurance
premiums; provided, that (A) such Liens are solely upon and confined solely to the equipment, unearned insurance
premiums or other asset or assets being acquired by such financing and (B) in the aggregate, the Indebtedness secured by such liens
does not exceed the greater of $2,000,000 or three-quarters of one percent (0.75%) of total assets as reported in the Company's
most recent publicly filed Form 10-K or 10-Q reports, (v) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, and (vi) any Lien on the assets or properties of Kinergy Marketing
LLC and Pacific AG. Products, LLC securing Permitted Subsidiary Indebtedness.

 

19.32     
“Permitted Payments” means any payments, distributions or transfers with respect to (i) any
Permitted Indebtedness (in the case of Subordinated Indebtedness, to the extent permitted by the relevant subordination or intercreditor
agreement) and (ii) any Permitted Distributions.

 

19.33     
“Permitted Subsidiary Indebtedness” means (i) any Indebtedness incurred by Kinergy Marketing
LLC and Pacific AG. Products, LLC under the Kinergy Credit Facility Agreement and any existing guarantee of such Indebtedness by
the Company, and (ii) any other Indebtedness incurred by Kinergy Marketing LLC and Pacific AG. Products, LLC that is permitted
under the Kinergy Credit Facility. For purposes of this definition, the term “Indebtedness shall include, but not be limited
to, the principal of (and premium, if any), interest on, and all fees and other amounts (including, without limitation, any reasonable
out-of-pocket costs, enforcement expenses (including reasonable out-of-pocket legal fees and disbursements), collateral protection
expenses and other reimbursement or indemnity obligations relating thereto).

 

19.34     
“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation,
a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

19.35     
“Principal Market” means The NASDAQ Capital Market.

 

    	21

    	 

    

 

19.36     
“Property Loss Event” means (a) any loss of or damage to property of the Company or its Subsidiaries
that results in the receipt by such Person of proceeds of insurance or (b) any taking of property of the Company or any of
its Subsidiaries that results in the receipt by such Person of a compensation payment in respect thereof.

 

19.37     
“Purchase Agreement” means the Securities Purchase Agreement, dated as of December 19, 2012, by
and among the Company, the Holder, and each other “Investor” (as defined therein) as amended, restated or otherwise
modified from time to time.

 

19.38     
“Required Holders” means the holders of Notes representing at least 66 2/3% of the aggregate principal
amount of the Notes then outstanding (excluding any Notes held by the Company or any of its Subsidiaries).

 

19.39     
“Specified A-2 Debt” shall mean the Tranche A-2 Term Loans (as defined in the Pacific Holdings
Restated Credit Facility) acquired by the Company on the Issuance Date with the proceeds of the issuance of the Note and the Other
Notes.

 

19.40     
“Subsidiary” means any Person in which the Company, directly or indirectly, (I) owns any
of the outstanding capital stock or holds any equity or similar interest of such Person or (II) controls or operates all or
any part of the business, operations or administration of such Person; provided that, for purposes of this Note, the term
“Subsidiary” shall expressly exclude the Excluded Subsidiaries.

 

19.41     
“Threshold Balance Reduction” means, the aggregate outstanding principal balance of the Note and
all Other Notes shall be less than $11,096,245.32.

 

19.42     
“Trading Day” means (a) any day on which the Common Stock is listed or quoted and traded
on any Eligible Market, (b) if the Common Stock is not then listed or quoted and traded on any Eligible Market, then a day
on which trading occurs on the Principal Market (or any successor thereto), or (c) if trading ceases to occur on the Principal
Market (or any successor thereto), any Business Day.

 

19.43     
“Transaction Documents” means this Note, the Other Notes and each Purchase Agreement, together
with any amendments, restatements, extensions or other modification thereto.

 

19.44     
“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant
to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the happening of any contingency).

 

19.45     
“Warrants” means the warrants issued pursuant to the Purchase Agreement.

 

    	22

    	 

    

 

19.46     
“Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average
price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security,
then on the principal securities exchange or securities market on which such security is then traded) during the period beginning
at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close
of trading) as reported by Bloomberg through its “Volume at Price” functions, or, if the foregoing does not apply,
the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces
is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces
is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink
OTC Markets Inc.). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing
bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company
and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute
shall be resolved by an independent, reputable investment bank selected by the Required Holders and approved by the Company, such
approval not to be unreasonably withheld or delayed. All such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

 

FOR PURPOSES OF
SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THIS NOTE IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT
ON THE ISSUANCE DATE OF THIS NOTE. THE COMPANY AGREES TO PROVIDE PROMPTLY TO EACH HOLDER OF THIS NOTE, UPON WRITTEN REQUEST (1) THE
ISSUE PRICE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT AND (3) THE YIELD TO MATURITY OF THIS NOTE. ANY SUCH WRITTEN REQUEST
SHOULD BE SENT TO THE COMPANY AT THE FOLLOWING ADDRESS: 400 CAPITOL MALL, SUITE 2060, SACRAMENTO, CA 95814, ATTN: BRYON T. MCGREGOR,
CFO.

 

[signature page follows]

 

 

 

 

 

 

    	23

    	 

    

 

IN WITNESS WHEREOF,
the Company has caused this Note to be duly executed as of the first date set forth above.

 

	 	PACIFIC ETHANOL, INC.	 
	 	 	 	 
		By:	 	 
	 	 	Name: Bryon T. McGregor	 
	 	 	Title: Chief Financial Officer	 
	 	 	 	 

 

	AGREED AND ACCEPTED:	 
	HOLDER:	 
	 	 
	 	 
	[HOLDER]	 
	 	 
	 	 

 

 

 

 

 

 

24EXHIBIT 10.3

 
  

NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE
TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

 

PACIFIC
ETHANOL, INC.

 

[FORM
OF]

Warrant
To Purchase Common Stock

 

Warrant No.: D12-____

Number of Shares of Common Stock:___________
1

Date of Issuance: [●], 201__ (“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, [INVESTOR], 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 exercise 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 hereof (the “Issuance 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 16. This Warrant is one of several Warrants to Purchase Common Stock (the “Warrants”) issued
pursuant to Section 2.1 of that certain Securities Purchase Agreement (the “Securities Purchase Agreement”),
dated as of December 19, 2012, by and among the Company, the Holder and certain other investors.

 

 

 

1Total of all warrants to be 25,630,286.

 

 

    	 

    	 	 

    

 

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 Issuance Date, but before 11:59 p.m. New York time, on the Expiration 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. Within two (2) days following the Exercise Notice, the Holder shall make payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being
exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds, or provided
the conditions for cashless exercise set forth in Section 1(d) are satisfied, by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. 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 first (1st) Business Day following the
date on which the Company has received the Exercise Notice, the Company shall transmit by facsimile or electronic mail an acknowledgment
of confirmation of receipt of the Exercise Notice to the Holder and the Company's transfer agent (the “Transfer Agent”).
On or before the third (3rd) Trading 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
balance account with DTC through its Deposit Withdrawal At Custodian 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. The Company shall be responsible for all fees
and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any. 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 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 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. Notwithstanding anything to the contrary
herein, except in the case where an exercise of this Warrant is validly made pursuant to a Cashless Exercise (as defined in Section
1(d), the Company’s failure to deliver Warrant Shares to the Holder shall not be deemed to be a breach of this Warrant if
the Company has not received the Aggregate Exercise Price pursuant to the requirements of this Section 1(a).

 

    	2

    	 

    

 

(b)               Exercise
Price. For purposes of this Warrant, “Exercise Price” means $0.52 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 on or before the Share Delivery Date 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 the Share Delivery Date 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 or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise
hereunder (as the case may be) (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 Sale Price
on the Trading Day immediately preceding the date of the Exercise Notice.

 

(d)              
Cashless Exercise. Notwithstanding anything contained herein to the contrary, (i) if a registration statement covering
the resale by the Holder of the Warrant Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”)
is not available for the resale of such Unavailable Warrant Shares, or (ii) at any time after March 30, 2016, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such exercise, the Holder can elect instead to receive upon
such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless
Exercise”):

 

	 	Net Number =	(A x B) - (A x C)	 
	 	 	D	 

 

For purposes of the foregoing
formula:

 

A=
the total number of shares with respect to which this Warrant is then being exercised.

 

B=
the arithmetic average of the Closing Sale Prices of the shares of Common Stock for the five (5) consecutive Trading Days ending
on the date immediately preceding the date of the Exercise Notice.

 

C=
the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

D=
the Closing Sale Price on the date of the Exercise Notice.

 

(e)               
Rule 144. For purposes of Rule 144(d) promulgated under the Securities Act of 1933, as amended, 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 Issuance Date.

 

    	3

    	 

    
 

(f)               
Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of
the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number
of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.

 

(g)               Beneficial
Ownership Limitation. Notwithstanding anything to the contrary contained herein, the Company shall not effect the
exercise of this Warrant, and 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 4.99%
(the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after
giving effect to such exercise. 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 with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “1934 Act”). 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 one (1)
Business Day 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 the Warrants, 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 and not to any other holder of Warrants issued
pursuant to the Securities Purchase Agreement. For the avoidance of doubt, to the extent the limitation set forth in this
Section 1(g) applies, the determination (i) of whether the exercise of this Warrant may be effected (vis-a-vis other Options
or Convertible Securities owned by the Holder or any of its Affiliates) and (ii) of which such Options or Convertible
Securities shall be convertible, exercisable or exchangeable (as the case may be, as among all such securities owned by the
Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). The provisions of this paragraph shall be construed and
implemented in a manner other than in strict conformity with the terms of this Section 1(g) 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.

 

(h)              
Insufficient Authorized Shares.  If at any time from and after the ninetieth (90th) day following the
Issuance Date and while any of the Warrants remain outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at least 100%
of the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the Warrants
then outstanding (without regard to any limitations on exercise) (the “Required Reserve Amount”) (an “Authorized
Share Failure”), then the Company shall immediately deliver a notice to the Holder specifying the number of shares unavailable
to satisfy its obligations under this Warrant and shall take all action necessary to increase the Company’s authorized shares
of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Warrants then outstanding.
Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized
Share Failure, but in no event later than ninety (90) days after the occurrence of such Authorized Share Failure (the “Authorized
Share Failure Deadline”), and assuming such Authorized Share Failure still exists, the Company shall hold a meeting
of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit
its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal. In the event that upon any exercise of this Warrant at any time
from and after the Authorized Share Failure Deadline, the Company does not have sufficient authorized shares to deliver in satisfaction
of such exercise, then unless the Holder elects to void such exercise, the Company shall pay to the Holder within three (3) Trading
Days of the applicable exercise, cash in an amount equal to the product of (i) the number of Warrant Shares that the Company is
unable to deliver pursuant hereto and (ii) the Black Scholes Value.

 

    	4

    	 

    

 

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)              
Stock Dividends and Splits. Without limiting any provision of Section 2(b) or Section 4, if the Company, at any
time on or after the Issuance Date, (i) pays a stock dividend on one or more classes of its then outstanding shares of
Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common
Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes
of its then outstanding shares of Common Stock into a smaller number of shares (a “Stock Combination Event”),
then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and
any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date
of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an
Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect
such event. Simultaneously with any adjustment to the Exercise Price pursuant to this paragraph, the number of Warrant Shares
that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise
Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).

 

(b)              
Adjustment of Exercise Price Upon Issuance of Shares of Common Stock. If and whenever on or after the Issuance
Date, the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding
any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “New
Issuance Price”) less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (such Exercise Price then in effect is referred to as the “Applicable Price”) (the foregoing
a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall
be reduced to an amount equal to the product of (A) the Exercise Price in effect immediately prior to such Dilutive Issuance and
(B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the Exercise Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common Stock Deemed Outstanding immediately prior to such Dilutive
Issuance plus (II) the consideration, if any, received by the Company upon such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Exercise Price in effect immediately prior to such Dilutive Issuance by (II) the number of shares of Common
Stock Deemed Outstanding immediately after such Dilutive Issuance. For purposes of determining
the adjusted Exercise Price under this Section 2(b), the following shall be applicable:

 

    	5

    	 

    

 

                                                                                        
(i)                       
Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option
for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such
Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise
of such Option and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon
the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise
of any such Option minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the
granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option plus the value of any other consideration received or receivable by, or benefit conferred
on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price
shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

                                                                                      
(ii)                       
Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less
than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by
the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this
Section 2(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise
or exchange thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received
or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible
Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all
amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible
Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible
Security (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the
actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has
been or is to be made pursuant to other provisions of this Section 2(b), except as contemplated below, no further adjustment of
the Exercise Price shall be made by reason of such issue or sale.

 

 

 

    	6

    	 

    

 

                                                                                    
(iii)                       
Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the
additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases
or decreases at any time, the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise
Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(b)(iii), if the terms of any Option or Convertible Security that was outstanding
as of the Issuance Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed
to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect.

 

                                                                                    
(iv)                       
Calculation of Consideration Received. If any Option or Convertible Security or Adjustment Right is issued in connection
with the issuance or sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated
transaction, all securities issued in the integrated transaction shall be deemed to have been issued for consideration equal to
the aggregate consideration received or receivable by the Company. If any shares of Common Stock, Options or Convertible Securities
are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the
net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair
value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of
consideration received by the Company for such securities will be the arithmetic average of the “Weighted Average Price”
(as defined in the Securities Purchase Agreement) of such security for each of the five (5) Trading Days immediately preceding
the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such
shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash
or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such
Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be
borne by the Company.

 

                                                                                      
(v)                       
Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase
(as the case may be).

 

 

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(c)                Other
Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not
strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the
type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features),
then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the
Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder, provided that no
such adjustment pursuant to this Section 2(c) will increase the Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept such adjustments as
appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the
Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such
appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the
Company.

 

(d)               
Calculations.
All calculations under this Section 2 shall be made by rounding to the nearest cent or the nearest 1/100th of a share,
as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

3.     
RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above, 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 securities (other
than stock or securities in which an adjustment is being made pursuant to Section 2(a)), property or options by way of a dividend,
spin off, 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, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein 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 exercise hereof, including without limitation,
the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, 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 participation in such Distribution
(provided, however, to the extent that the Holder’s right to participate in any such Distributions would result in the Holder
exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or
the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution
to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not
result in the Holder exceeding the Maximum Percentage, at which time the Holder shall be granted such right to the same extent
as if there had been no such limitation).

 

 

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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 Options, Convertible Securities or 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 exercise hereof, including without limitation, the Maximum Percentage) 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 (provided,
however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding
the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent
shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding
the Maximum Percentage, at which time the Holder shall be granted such right to the same extent as if there had been no such limitation).

 

(b)  
Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor
Entity assumes in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 4(b),
including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for
a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and
with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock,
such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic
value of this Warrant immediately prior to the consummation of such Fundamental Transaction. Upon the consummation of each Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of the applicable Fundamental
Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer
instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations
of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.

 

 

 

    	9

    	 

    

 

Upon consummation
of each Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon
exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above,
which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant (without regard to any limitations
on the exercise of this Warrant) prior to the applicable Fundamental Transaction, such shares of publicly traded common stock (or
its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon
the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental
Transaction (without regard to any limitations on the exercise of this Warrant), as adjusted in accordance with the provisions
of this Warrant. Notwithstanding the foregoing, and without limiting Section 1(g) hereof, the Holder may elect, at its sole option,
by delivery of written notice to the Company to waive this Section 4(b) to permit the Fundamental Transaction without the assumption
of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of each Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation
of the applicable Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue
to be receivable thereafter)) issuable upon the exercise of the Warrant prior to such Fundamental Transaction (without regard to
any limitations on the exercise of this Warrant), such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening
of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction
(without regard to any limitations on the exercise of this Warrant). Provision made pursuant to the preceding sentence shall be
in a form and substance reasonably satisfactory to the Holder. Notwithstanding the foregoing, in the event of a Fundamental Transaction,
at the request of the Holder (which may be required by the Company if the Successor Entity is not publicly traded) 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 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.

 

(c)   
Application. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions
and Corporate Events and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable and without
regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act, and thereafter
receivable upon exercise of this Warrant (or any such other warrant)).

 

 

 

    	10

    	 

    

 

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.

 

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 than 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.

 

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(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.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile or email at the facsimile number or email address specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section on
a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading
Day following the date of deposit with a nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses, facsimile numbers and email addresses for such notices
and communications are those as may be designated by the Holder and the Company prior to the Issuance Date, and in writing
hereafter, in the same manner, by any such Person. 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 therefor.
Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon
each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying,
the calculation of such adjustment(s) and (ii) at least fifteen (15) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with
respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the
public prior to or in conjunction with such notice being provided to the Holder and (iii) at least ten (10) Trading Days
prior to the consummation of any Fundamental Transaction. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Company or any of its Subsidiaries, the Company shall simultaneously
file such notice with the Securities and Exchange Commission pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may
not be disputed or challenged by the Company.

 

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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. No waiver shall be effective unless it is in writing and signed by an authorized
representative of the waiving party.

 

10. 
SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable
by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues
to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations
or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the
parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

11. 
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. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City
of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate
to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect
on the Company’s obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder. THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

12. 
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.

 

 

 

 

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13. 
DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price, the Closing Sale Price,
the Closing Bid Price or fair market value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company
or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via
facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or
the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances
giving rise to such dispute (including, without limitation, as to whether any issuance or sale or deemed issuance or sale was an
issuance or sale or deemed issuance or sale of Excluded Securities). If the Holder and the Company are unable to agree upon such
determination or calculation (as the case may be) of the Exercise Price, the Closing Sale Price, the Closing Bid Price or fair
market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination
or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within two
(2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price, the Closing Sale Price, the Closing
Bid Price or fair market value (as the case may be) to an independent, reputable investment bank selected 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 (as
the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives
such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination
or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

 

14. 
REMEDIES, CHARACTERIZATION, 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 and the other Transaction Documents, 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. The Company
covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein.
Amounts set forth or provided for herein with respect to payments, exercises and the like (and the computation thereof) shall be
the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation
of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that,
in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other
security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder
to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without
limitation, compliance with Section 2 hereof). The issuance of shares and certificates for shares as contemplated hereby upon the
exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.

 

 

 

 

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15. 
TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

 

16. 
CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)               
“Adjustment Right” means any right granted with respect to any securities issued in connection with,
or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 2) of shares of Common Stock (other
than rights of the type described in Section 3 and 4 hereof) that could result in a decrease in the net consideration received
by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights,
cash adjustment or other similar rights).

 

(b)              
“Black Scholes Value” means the value of the unexercised portion of this Warrant remaining on the date
of the Holder’s request, which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV”
function on Bloomberg utilizing (i) an underlying price per share equal to, in the event of an Authorized Share Failure, the VWAP
on the exercise date, or, in the event of a Fundamental Transaction, the VWAP on the Trading Day immediately preceding the consummation
of the applicable Fundamental Transaction, (ii) a strike price equal to the Exercise Price in effect on the date of the Holder’s
request, (iii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the greater of (1) the remaining
term of this Warrant as of the date of the Holder’s request and (2) the remaining term of this Warrant as of the date of
consummation of the applicable Fundamental Transaction or as of the date of the Holder’s request pursuant to Section 4(c),
if such request is prior to the date of the consummation of the applicable Fundamental Transaction, (iv) an expected volatility
equal to the greater of 90% and the 30-day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365-day
annualization factor) as of the Trading Day immediately following the earlier to occur of the public disclosure or consummation
of the applicable Fundamental Transaction and (v) a 0% cost of borrow.

 

(c)               
“Bloomberg” means Bloomberg, L.P.

 

(d)              
“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.

 

 

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(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. If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations
to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.

 

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

 

(g)              
“Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually
outstanding at such time.

 

(h)              
“Convertible Securities” means any capital stock or other security (other than Options) that is at any
time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise
entitles the holder thereof to acquire, any shares of Common Stock.

 

(i)                
“Eligible Market” means The New York Stock Exchange, The NYSE Amex, The NASDAQ Global Market, The NASDAQ
Global Select Market or the Principal Market.

 

    	16

    	 

    

 

(j)                
“Excluded Securities” means the issuance of (a) shares of Common Stock or options to employees, officers
or directors of the Company in their capacity as such pursuant to any stock or option plan or employment agreement duly adopted
for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee
of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of securities
issued pursuant to the Transaction Documents and/or other securities exercisable or exchangeable for or convertible into shares
of Common Stock issued and outstanding on the Issuance Date, provided that such securities have not been amended since the Issuance
Date to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities,
(c) Interest Shares and (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equity holders of
a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.

 

(k)              
 “Expiration Date” means the date that is the five (5) year anniversary of the Issuance Date, 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.

 

(l)                
“Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly,
in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries
is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all
or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase,
tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company
(not including any shares of Voting Stock of the Company 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 (4) consummate a stock or share purchase agreement
or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement)
with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company
(not including any shares of Voting Stock of the Company 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 or share purchase agreement or other business combination),
or (5) reorganize, recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is
or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50%
of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.

 

(m)            
“Interest Shares” shall have the meaning set forth in Section 2.2 of the Form of Senior Unsecured Note
attached as Exhibit B to the Securities Purchase Agreement.

 

(n)              
“Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

 

    	17

    	 

    

 

(o)              
“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.

 

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

 

(q)              
“Principal Market” means The NASDAQ Capital Market.

 

(r)                
“Subsidiary” means any direct or indirect wholly-owned subsidiary of the Company.

 

(s)               
“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.

 

(t)                
“Trading Day” means any day on which the Common Stock is 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 is then traded, provided that “Trading Day” shall not include any day on which the Common
Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is 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) unless such
day is otherwise designated as a Trading Day in writing by the Holder.

 

(u)              
“Transaction Documents” has the meaning given to such term in the Securities Purchase Agreement.

 

(v)              
“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which
the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any contingency).

 

[signature page follows]

 

 

    	18

    	 

    

 

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:	Neil M. Koehler	 
	 	Title:	President and Chief Executive Officer	 
	 	 	 	 

 

 

 

 

 

 

 

 

 

 

 

 

    	19

    	 

    

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 intends that 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 has elected 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.                 
Representations and Warranties. By its delivery of this Exercise Notice, the undersigned represents and warrants
to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number
of shares of Common Stock permitted to be owned under Section 1(f) of this Warrant to which this notice relates.

 

4.                 
Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with
the terms of the Warrant. Delivery shall be made to the Holder, or for its benefit, to the following address:

 

 

 

 

 

	Date:	 _______________ __, ______	 
	 	 
	 	 
	Name of Registered Holder	 
	 	 	 
	By:	 	 
	 	Name: 	 	 
	 	Title: 	 	 
	 	 	 
	 	 	 

 

    	20

    	 

    

 

 

ACKNOWLEDGMENT

 

 

The Company hereby
acknowledges this Exercise Notice and hereby directs American Stock Transfer & Trust Co., LLC to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ______, 201__ from the Company and acknowledged
and agreed to by American Stock Transfer & Trust Co. LLC.

 

 

	 	PACIFIC ETHANOL, INC.	 
	 	 	 	 
	 	By:	 	 
	 	 	Name 	 	 
	 	 	Title 	 	 
			 	 

 

 

 

 

 

 

21

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