Document:

Warrant to Purchase Common Stock dated October 17, 2006

    EXHIBIT
      10.2

     

     

    THIS
      WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE
      SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
      IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES
      UNDER THE ACT OR SUCH LAWS OR, IF REASONABLY REQUESTED BY THE COMPANY, AN
      OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
      OR QUALIFICATION IS NOT REQUIRED.

     

    PACIFIC
      ETHANOL, INC.

     

    WARRANT
      TO PURCHASE COMMON STOCK

     

    October
      17, 2006

    Void
      After October 17, 2007

     

    This
      Certifies That,
      for
      value received, Eagle
      Energy, LLC,
      or
      registered assigns (the “Holder”),
      is
      entitled to subscribe for and purchase at the Exercise Price (defined below)
      from Pacific
      Ethanol, Inc.,
      a
      Delaware corporation (the “Company”),
      with
      its principal office at 5711 N. West Avenue, Fresno, CA 93711, up to 693,963
      shares of Common Stock of the Company (the “Common
      Stock”).

     

    1. Definitions.
      As
      used
      herein, the following terms shall have the following respective
      meanings:

     

    (a) “Exercise
      Period”
shall
      mean the period commencing with the date hereof and ending at 5:00 PM, Pacific
      Daylight Time, on October 17, 2007, unless sooner terminated as provided
      below.

     

    (b) “Exercise
      Price”
shall
      mean $14.41 per share, subject to adjustment pursuant to Section 5
      below.

     

    (c) “Exercise
      Shares”
shall
      mean the shares of the Company’s Common Stock issuable upon exercise of this
      Warrant, subject to adjustment pursuant to the terms herein, including but
      not
      limited to adjustment pursuant to Section 5 below.

     

    2. Exercise
      of Warrant. The
      rights represented by this Warrant may be exercised in whole or in part at
      any
      time during the Exercise Period, by delivery of the following to the Company
      at
      its address set forth above (or at such other address as it may designate by
      notice in writing to the Holder):

     

    (a) An
      executed Notice of Exercise in the form attached hereto; and

     

    (b) Payment
      of the Exercise Price in immediately available funds.

     

    The
      Holder shall not be required to deliver the original Warrant in order to effect
      an exercise hereunder. Execution and delivery of the Notice of Exercise by
      the
      Holder shall have the same effect as cancellation of the original Warrant and
      issuance of a new Warrant evidencing the right to purchase the number of
      Exercise Shares remaining to be purchased hereunder.

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

    Upon
      the
      exercise of the rights represented by this Warrant, the
      Company shall promptly (but in no event later than three trading days if a
      registration statement is in effect covering the resale of the Exercise Shares)
      issue and deliver, or cause to
      be
      issued and delivered,
      a
      certificate or certificates for the Exercise Shares so purchased, registered
      in
      the name of the Holder or, if the Holder complies with the requirements of
      Section 10 and so designates in the Notice of Exercise, another name or
      names.

     

    The
      person in whose name any certificate or certificates for Exercise Shares are
      to
      be issued upon exercise of this Warrant shall be deemed to have become the
      holder of record of such shares on the date on which the Notice of Exercise
      and
      payment of the Exercise Price was made, irrespective of the date of delivery
      of
      such certificate or certificates, except that, if the date of such Notice and
      payment is a date when the stock transfer books of the Company are closed,
      such
      person shall be deemed to have become the holder of such shares at the close
      of
      business on the next succeeding date on which the stock transfer books are
      open.

     

    2.1 Net
      Exercise.
      Notwithstanding any provisions herein to the contrary, if the fair market value
      of one share of the Company’s Common Stock is greater than the Exercise Price
      (at the date of calculation as set forth below), in lieu of exercising this
      Warrant in whole or in part by payment of immediately available funds, the
      Holder may elect to receive shares equal to the value (as determined below)
      of
      this Warrant (or the portion thereof being canceled) by delivery of the properly
      endorsed Notice of Exercise in which event the Company shall issue to the Holder
      a number of shares of Common Stock computed using the following
      formula:

     

    X
      =
Y
      (A-B)

        A

     

    
      	
            	Where
              X =	
               the
                number of shares of Common Stock to be issued to the
                Holder

            

    

     

    
      	 	
              Y
                =  

            	
              the
                number of shares of Common Stock purchasable under the Warrant or,
                if only
                a portion of the Warrant is being exercised, the portion of the Warrant
                being canceled (at the date of such
                calculation)

            

    

     

    
      	 	
              A
                =  

            	
              the
                fair market value of one share of the Company’s Common Stock (at the date
                of such calculation)

            

    

     

    
      	 	
              B
                =  

            	
              Exercise
                Price (as adjusted to the date of such
                calculation)

            

    

     

    For
      purposes of the above calculation, the fair market value of one share of Common
      Stock shall be: If the Common Stock is traded on a national securities exchange
      or admitted to unlisted trading privileges on such an exchange, the fair market
      value as of a specified day shall be the last reported sale price of Common
      Stock on such exchange on such date or if no such sale is made on such day,
      the
      mean of the closing bid and asked prices for such day on such exchange. If
      the
      Common Stock is not so listed or admitted to unlisted trading privileges, the
      fair market value as of a specified day shall be the mean of the last bid and
      asked prices reported on such date by the National Quotation Bureau
      Incorporated. If the Common Stock is not so listed or admitted to unlisted
      trading privileges and bid and asked prices are not reported, the fair market
      value as of a specified day shall be determined in good faith by the Board
      of
      Directors of the Company.

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    3. Covenants
      of the Company.

     

    3.1 Covenants
      as to Exercise Shares.
      The
      Company covenants and agrees that all Exercise Shares that may be issued upon
      the exercise of the rights represented by this Warrant will, upon issuance,
      be
      validly issued and outstanding, fully paid and nonassessable, and free from
      all
      taxes, liens and charges with respect to the issuance thereof. The Company
      further covenants and agrees that the Company will, at all times during the
      Exercise Period, have authorized and reserved, free from preemptive rights,
      a
      sufficient number of shares of its Common Stock to provide for the exercise
      of
      the rights represented by this Warrant. Without limiting the liability of the
      Company for breach of the foregoing covenants, if at any time during the
      Exercise Period the number of authorized but unissued shares of Common Stock
      shall not be sufficient to permit exercise of this Warrant, the Company will
      take such corporate action as may be necessary to increase its authorized but
      unissued shares of Common Stock to such number of shares as shall be sufficient
      for such purposes.

     

    3.2 Notice
      of Corporate Events.
      If the
      Company (i) declares a dividend or any other distribution of cash, securities
      or
      other property in respect of its Common Stock, including without limitation
      any
      granting of rights or warrants to subscribe for or purchase any capital stock
      of
      the Company or any subsidiary, (ii) authorizes or approves, enters into any
      agreement contemplating or solicits stockholder approval for any Organic
      Transaction or (iii) authorizes the voluntary dissolution, liquidation or
      winding up of the affairs of the Company, then the Company shall deliver to
      the
      Holder a notice describing the material terms and conditions of such
      transaction, at least 10 calendar days prior to the applicable record or
      effective date on which a person would need to hold Common Stock in order to
      participate in or vote with respect to such transaction, and the Company will
      take all steps reasonably necessary in order to insure that the Holder is given
      the practical opportunity to exercise this Warrant prior to such time so as
      to
      participate in or vote with respect to such transaction; provided, however,
      that
      the failure to deliver such notice or any defect therein shall not affect the
      validity of the corporate action required to be described in such
      notice.

     

    4. Adjustment
      of Exercise Price; Effect of Organic Changes

     

    4.1 Adjustment
      of Exercise Price. In
      the
      event of changes in the outstanding Common Stock of the Company by reason of
      stock dividends, splits, recapitalizations, reclassifications, combinations
      or
      exchanges of shares, separations, reorganizations, liquidations, or the like,
      the number and class of shares available under the Warrant in the aggregate
      and
      the Exercise Price shall be correspondingly adjusted to give the Holder of
      the
      Warrant, on exercise for the same aggregate Exercise Price, the total number,
      class, and kind of shares as the Holder would have owned had the Warrant been
      exercised prior to the event and had the Holder continued to hold such shares
      until after the event requiring adjustment. The form of this Warrant need not
      be
      changed because of any adjustment in the number of Exercise Shares subject
      to
      this Warrant.

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    4.2 Reorganization,
      Reclassification, Consolidation, Merger or Sale.
      If any
      recapitalization, reclassification or reorganization of the capital stock of
      the
      Company, or any consolidation or merger of the Company with another corporation,
      or the sale of all or substantially all of its assets or other transaction
      shall
      be effected in such a way that holders of the Company’s Common Stock shall be
      entitled to receive stock, securities, or other assets or property (an
“Organic
      Change”),
      then,
      as a condition of such Organic Change, lawful and adequate provisions shall
      be
      made by the Company whereby the Holder hereof shall thereafter have the right
      to
      purchase and receive (in lieu of the shares of the Common Stock of the
      Company immediately theretofore purchasable and receivable upon the exercise
      of
      the rights represented hereby, which rights to purchase and receive such shares
      of Common Stock shall have terminated upon the occurrence of an Organic Change
      and been replaced by the rights described herein) such shares of stock,
      securities or other assets or property as may be issued or payable with respect
      to or in exchange for a number of outstanding shares of such Common Stock equal
      to the number of shares of such stock immediately theretofore purchasable and
      receivable upon the exercise of the rights represented hereby. In the event
      of
      any Organic Change, appropriate provision shall be made by the Company with
      respect to the rights and interests of the Holder of this Warrant to the end
      that the provisions hereof (including, without limitation, provisions for
      adjustments of the Exercise Price and of the number of shares purchasable and
      receivable upon the exercise of this Warrant) shall thereafter be applicable,
      in
      relation to any shares of stock, securities or assets thereafter deliverable
      upon the exercise hereof. The Company will not effect any such consolidation,
      merger or sale unless, prior to the consummation thereof, the successor
      corporation (if other than the Company) resulting from such consolidation or
      the
      corporation purchasing such assets shall assume by written instrument
      reasonably satisfactory in form and substance to the Holder of this Warrant,
      executed and mailed or delivered to the registered Holder hereof at the last
      address of such Holder appearing on the books of the Company, the obligation
      to
      deliver to such Holder such shares of stock, securities or assets as, in
      accordance with the foregoing provisions, such Holder may be entitled to
      purchase.

     

    4.3 Notice
      of Adjustments.
      Upon
      the occurrence of each adjustment pursuant to this Section 4, the Company at
      its
      expense will promptly compute such adjustment in accordance with the terms
      of
      this Warrant and prepare a certificate setting forth such adjustment, including
      a statement of the adjusted Exercise Price and adjusted number or type of
      Warrant Shares or other securities issuable upon exercise of this Warrant (as
      applicable), describing the transactions giving rise to such adjustments and
      showing in detail the facts upon which such adjustment is based. Upon written
      request, the Company will promptly deliver a copy of each such certificate
      to
      the Holder.

     

    4.4 No
      Impairment. The
      Company will not, by amendment of its governing documents or through any other
      voluntary action, avoid or seek to avoid the observance or performance of any
      of
      the terms of this Warrant,
      but will at all times in good faith assist in the carrying out of all such
      terms
      and in the taking of all such action as may be necessary or appropriate in
      order
      to protect the rights of the Holder against impairment. Without limiting the
      generality of the foregoing, the Company (i) will not increase the par value
      of
      any Warrant
      Shares above the amount payable therefore on such exercise, (ii) will take
      all
      such action as may be reasonably necessary or appropriate in order that the
      Company may validly and legally issue fully paid and nonassessable Warrant
      Shares on the exercise of this Warrant,
      and (iii) will not close its stockholder books or records in any manner which
      interferes with the timely exercise of this Warrant.

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    5. Fractional
      Shares. No
      fractional shares shall be issued upon the exercise of this Warrant as a
      consequence of any adjustment pursuant hereto. All Exercise Shares (including
      fractions) issuable upon exercise of this Warrant may be aggregated for purposes
      of determining whether the exercise would result in the issuance of any
      fractional share. If, after aggregation, the exercise would result in the
      issuance of a fractional share, the Company shall, in lieu of issuance of any
      fractional share, pay the Holder otherwise entitled to such fraction a sum
      in
      cash equal to the product resulting from multiplying the then current fair
      market value of an Exercise Share by such fraction.

     

    6. Amendment
      and Waiver.
      This
      Warrant may be amended, and the obligations of the Company and the rights of
      the
      Holder under the Warrant may be waived, with the written consent of the Company
      and the Holder.

     

    7. Limitation
      on Exercise.
      Notwithstanding anything to the contrary contained herein, the number of shares
      of Common Stock that may be acquired by the Holder upon any exercise of this
      Warrant (or otherwise in respect hereof) shall be limited to the extent
      necessary to insure that, following such exercise (or other issuance), the
      total
      number of shares of Common Stock then beneficially owned by such Holder and
      its
      Affiliates and any other Persons whose beneficial ownership of Common Stock
      would be aggregated with the Holder’s for purposes of Section 13(d) of the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”),
      does
      not exceed 4.999% (the “Maximum
      Percentage”)
      of the
      total number of issued and outstanding shares of Common Stock (including for
      such purpose the shares of Common Stock issuable upon such exercise). For such
      purposes, beneficial ownership shall be determined in accordance with
      Section 13(d) of the Exchange Act and the rules and regulations promulgated
      thereunder. Each delivery of an Exercise Notice hereunder will constitute a
      representation by the Holder that it has evaluated the limitation set forth
      in
      this paragraph and determined that issuance of the full number of Warrant Shares
      requested in such Exercise Notice is permitted under this paragraph. The
      Company’s obligation to issue shares of Common Stock in excess of the limitation
      referred to in this Section shall be suspended (and shall not terminate or
      expire notwithstanding any contrary provisions hereof) until such time, if
      any,
      as such shares of Common Stock may be issued in compliance with such limitation,
      but in no event later than the end of the Exercise Period. By written notice
      to
      the Company, the Holder may waive the provisions of this Section of increase
      or
      decrease the Maximum Percentage to any other percentage specified in such
      notice, but (i) any such waiver or increase will not be effective until the
      61st
      day
      after such notice is delivered to the Company, and (ii) any such waiver to
      increase or decrease will apply only to the Holder and not to any other holder
      of warrants to purchase shares of the Company’s Common Stock.

     

    8. No
      Stockholder Rights. This
      Warrant in and of itself shall not entitle the Holder to any voting rights
      or
      other rights as a stockholder of the Company.

     

    9. Transfer
      of Warrant. Subject
      to applicable laws and the restrictions on transfer set forth on the first
      page
      of this Warrant and compliance with this Section 9, this Warrant and all rights
      hereunder may be transferred by the Holder, in person or by duly authorized
      attorney, upon delivery of this Warrant and the form of assignment attached
      hereto to a transferee designated by Holder (the “Transferee”).
      It
      shall be condition of such transfer and the registration of the Transferee
      as
      Holder hereunder that the Transferee shall sign an investment letter, which
      shall include the following representations and undertakings by the Transferee
      and shall otherwise be in form and substance reasonably satisfactory to the
      Company:

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    9.1 Securities
      Are Not Registered.

     

    (a) The
      Transferee understands that the Warrant and the Exercise Shares are “restricted
      securities” and that transfer or sale to the Transferee has not been registered
      under the Securities Act of 1933, as amended (the “Act”).

     

    (b) The
      Transferee is acquiring the Warrant for its own account for investment only,
      has
      no present intention of distributing the Warrant or the Exercise Shares and
      has
      no arrangement or understanding with any other person regarding the distribution
      of the Warrant or the Exercise Shares (this representation and warranty not
      limiting the Transferee’s right to sell the Exercise Shares pursuant to an
      effective registration statement under the Act or otherwise in accordance with
      an exemption from registration under the Act).

     

    (c) The
      Transferee recognizes that the Warrant and the Exercise Shares cannot be resold
      unless they are subsequently registered under the Act or an exemption from
      such
      registration is available.

     

    (d) The
      Transferee is an “accredited investor,” as defined in Rule 501(a) under the
      Act.

     

    9.2 Disposition
      of Warrant and Exercise Shares.

     

    (a) The
      Transferee further agrees not to make any disposition of all or any part of
      the
      Warrant or Exercise Shares unless and until:

     

    (i) There
      is
      then in effect a registration statement under the Act covering such proposed
      disposition, such disposition is made in accordance with such registration
      statement and the Transferee shall have provided to the Company reasonable
      evidence of the manner of disposition and compliance with any applicable
      prospectus delivery requirements; or

     

    (ii) The
      Transferee shall have notified the Company of the proposed disposition and
      shall
      have furnished the Company with a statement of the circumstances surrounding
      the
      proposed disposition, and if reasonably requested by the Company, the Transferee
      shall have furnished the Company with an opinion of counsel, reasonably
      satisfactory to the Company, for the Transferee to the effect that such
      disposition will not require registration of such Warrant or Exercise Shares
      under the Act or applicable state securities laws.

     

    (b) The
      Transferee understands and agrees that all certificates evidencing the Exercise
      Shares may bear the following legend:

     

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
      1933, AS AMENDED (THE “ACT”) OR APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT
      BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
      EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS OR, IF REASONABLY
      REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
      THE
      COMPANY THAT SUCH REGISTRATION OR QUALIFICATION IS NOT
      REQUIRED.

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    10. Issuance
      of Exercise Shares in Name Other Than Holder. The
      Holder may designate that the Exercise Shares be issued in a name or names
      other
      than the Holder so long as the Holder shall have transferred the right to
      receive such Exercise Shares in a manner consistent with the requirements of
      Section 9.2(a).

     

    11. Lost,
      Stolen, Mutilated or Destroyed Warrant. If
      this
      Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
      as to indemnity or otherwise as it may reasonably impose (which shall, in the
      case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
      of like denomination and tenor as the Warrant so lost, stolen, mutilated or
      destroyed. Any such new Warrant shall constitute an original contractual
      obligation of the Company, whether or not the allegedly lost, stolen, mutilated
      or destroyed Warrant shall be at any time enforceable by anyone.

     

    12. Notices,
      etc. All
      notices required or permitted hereunder shall be in writing and shall be deemed
      effectively given: (a) upon personal delivery to the party to be notified,
      (b) when sent by confirmed facsimile if sent during normal business hours
      of the recipient, if not, then on the next business day, (c) three (3)
      business days after having been sent by registered or certified mail, return
      receipt requested, postage prepaid, or (d) one (1) business day after
      deposit with a nationally recognized overnight courier, specifying next day
      delivery, with written verification of receipt. All communications shall be
      sent
      to the Company at the address listed on the first page of this Warrant and
      to
      Holder at the address set forth on the signature page hereof, or at such other
      address as the Company or Holder may designate by ten (10) days advance written
      notice to the other parties hereto.

     

    13. Acceptance.
      Receipt
      of this Warrant by the Holder shall constitute acceptance of and agreement
      to
      all of the terms and conditions contained herein.

     

    14. Governing
      Law. This
      Warrant and all rights, obligations and liabilities hereunder shall be governed
      by the laws of the State of California.

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    In
      Witness Whereof,
      the
      Company has caused this Warrant to be executed by its duly
      authorized.

     

    Pacific
      Ethanol, Inc.

     

    By:
      /s/
      Neil M.
      Koehler                                            

    Name:
      Neil
      M.
      Koehler                                             

    Title:
      CEO                                                                   

    

    

    Accepted
      and Agreed:

    

    Eagle
      Energy, LLC

     

    By:
      /s/
      David M.
      Flick                                     

    Name:
      David
      M.
      Flick                                      

    Title:
      President                                                 
      

    

    Address
      for Notices:

    

    David
      Fick, President

    Eagle
      Energy, LLC

    2113
      Pebble Beach Lane

    Brandon,
      SD  57005

     

    Phone: 
      605-201-1087 

    Fax: 
      605-582-8850

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    NOTICE
      OF EXERCISE

     

    TO:
      Pacific Ethanol, Inc.

     

    (1) 
       ̈ The
      undersigned (the “Holder”)
      hereby
      elects to purchase ________ shares of Common Stock of Pacific Ethanol, Inc.
      (the
“Company”)
      pursuant to the terms of the Warrant dated October __, 2006 (the “Warrant”),
      and
      tenders herewith payment of the exercise price in full, together with all
      applicable transfer taxes, if any, due as a consequence of the issuance of
      shares of Common Stock to a person other than the Holder.

     

     ̈ The
      Holder hereby elects to purchase ________ shares of Common Stock of Pacific
      Ethanol, Inc. (the “Company”)
      pursuant to the terms of the net exercise provisions set forth in
      Section 2.1 of the Warrant, and shall tender payment of all applicable
      transfer taxes, if any, due as a consequence of the issuance of the shares
      of
      Common Stock to a person other than the Holder.

     

    (2)  
      Please
      issue a certificate or certificates representing said shares of Common Stock
      in
      the name of the undersigned or, subject to compliance by the Holder with Section
      10 of the Warrant, in such other name as is specified below:

     

    ________________________

    (Name)

     

    ________________________

    ________________________

    (Address)

     

    (3) The
      Holder represents that (i) the Holder understands that the issuance of the
      shares of Common Stock upon exercise of this Warrant has not been registered
      under the Securities Act of 1933, as amended (the “Securities
      Act”);
      (ii)
      the undersigned is an “accredited investor” within the definition set forth in
      Rule 501(a) of the Securities Act, and (iii) the Holder understands that the
      Holder must comply with the requirements of Section 9.2 of the Warrant with
      respect to any transfer of shares of Common Stock issued upon exercise of the
      Warrant.

     

    
      	
              ____________________________________________

              (Date)

               

            	
              ______________________________________________________________

              (Signature)

               

              ______________________________________________________________

              (Print
                name)

               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ASSIGNMENT
      FORM

     

    (To
      assign the foregoing Warrant, execute this form and supply the required
      information. Do not use this form to purchase shares.)

     

    For
      Value Received,
      the
      foregoing Warrant and all rights evidenced thereby are hereby assigned
      to

     

    Name:_______________________________________________________________________________________________________(Please
      Print)

     

    Address:_____________________________________________________________________________________________________

     (Please
      Print)

     

    Dated:
      __________, ____

     

    Holder’s

    Signature:________________________________________

     

    Holder’s

    Address:_________________________________________

     

     

    NOTE:
      The
      signature to this Assignment Form must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatever. Officers of corporations and those acting in a fiduciary or other
      representative capacity should file proper evidence of authority to assign
      the
      foregoing Warrant.Registration Rights Agreement dated October 17, 2006

    EXHIBIT
      10.3

     

    

    REGISTRATION
      RIGHTS AGREEMENT

     

    THIS
      REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
      dated
      as of October 17, 2006 is made by and between PACIFIC ETHANOL, INC., a
      Delaware corporation (the “Company”),
      and
      EAGLE ENERGY, LLC, a South Dakota limited liability company (the “Seller”).

     

    This
      Agreement is being entered into pursuant to the Membership Interests Purchase
      Agreement, dated as of the date hereof between the Company and the Seller (the
      “Purchase
      Agreement”).

     

    The
      Company and the Seller hereby agree as follows:

     

    1. Definitions.
      Capitalized terms used and not otherwise defined herein shall have the meanings
      given such terms in the Purchase Agreement. Unless otherwise defined in the
      Purchase Agreement, capitalized terms used in this Agreement are defined in
      Exhibit A.

     

    2. Mandatory
      Registration.
      On or
      prior to the Filing Date, the Company shall prepare and file with the Commission
      a Registration Statement covering all Registrable Securities for an offering
      pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except
      if
      the Company is not then eligible to register for resale the Registrable
      Securities on Form S-3, in which case such registration shall be on another
      appropriate form). The Company shall use its commercially reasonable efforts
      to
      cause the Registration Statement to be declared effective under the Securities
      Act as promptly as reasonably possible after the filing thereof and to keep
      such
      Registration Statement continuously effective under the Securities Act until
      such date as is the earlier of: (i) the date when all Registrable Securities
      covered by such Registration Statement have been sold; and (ii) the date on
      which all Registrable Securities may be sold during a period of 90 days without
      any restriction pursuant to Rule 144 as determined by counsel to the Company
      pursuant to a written opinion letter, addressed to the Company’s transfer agent
      to such effect (the “Effectiveness
      Period”).
      

     

    3. Registration
      Procedures.
      In
      connection with the Company’s registration obligations hereunder, the Company
      shall:

     

    (a) (i) Prepare
      and file with the Commission on or prior to the Filing Date, a Registration
      Statement on Form S-3 (or if the Company is not then eligible to register for
      resale the Registrable Securities on Form S-3 such registration shall be on
      another appropriate form) in accordance with the method or methods of
      distribution thereof as specified by the Holders, and use its commercially
      reasonable efforts to cause the Registration Statement to become effective
      as
      soon as possible and to remain effective as provided herein. The Company shall
      provide a copy of the Registration Statement, and any amendments or supplements
      thereto, to the Holder by facsimile, e-mail or other method of communication
      acceptable to the Holder, at least two Business Days prior to filing the same
      with the Commission and shall incorporate into the same any revisions or changes
      therein regarding the Holder as the Holder shall reasonably request. The Company
      shall promptly notify the Holders via facsimile of the effectiveness of the
      Registration Statement by the third Business Day after the Company receives
      notification of the effectiveness from the Commission. 

    
      
        
        

      

      
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    (ii) If:
      (A)
      the Registration Statement is not filed on or prior to the Filing Date, (B)
      the
      Company fails to file with the Commission a request for acceleration in
      accordance with Rule 461 promulgated under the Securities Act, within five
      Business Days of the date that the Company is notified (orally or in writing,
      whichever is earlier) by the Commission that the Registration Statement will
      not
      be “reviewed,” or is not subject to further review, (C) the Registration
      Statement filed is not declared effective by the Commission on or before the
      Effectiveness Date, (D) the Company fails to have the Registrable
      Securities listed on an Eligible Market at any time during the Effectiveness
      Period, (E) except as provided in subsection
      3(n)
      below,
      after the Registration Statement is first declared effective by the Commission,
      it ceases for any reason to remain continuously effective as to all Registrable
      Securities for which it is required to be effective, or the Holders are not
      permitted to utilize the Prospectus therein to resell such Registrable
      Securities, for more than 10 Business Days, or (F) in the event the Holder
      has
      been notified in the circumstances and in accordance with subsection
      3(n)
      below,
      after the Registration Statement is first declared effective by the Commission,
      it ceases for any reason to remain continuously effective as to all Registrable
      Securities for which it is required to be effective, or the Holders are not
      permitted to utilize the Prospectus therein to resell such Registrable
      Securities, for an aggregate of 45 days during any 12-month period (which need
      not be consecutive days) (any such failure or breach being referred to as an
      “Event,”
and
      for purposes of clause (A), (C) or (D) the date on which such Event occurs,
      or
      for purposes of clause (B) or (E), the date on which such five Business Day
      period is exceeded, or for purposes of clause (F) the date on which such 45
      day-period plus is exceeded being referred to as “Event
      Date”),
      then
      on each such Event Date and on each monthly anniversary of each such Event
      Date
      (if the applicable Event shall not have been cured by such date) until the
      applicable Event is cured, the Company shall pay to each Holder an amount in
      cash, as liquidated damages and not as a penalty, equal to 1.0% of (x) the
      sum
      of number of Registrable Securities held by the Holder plus the number of
      Warrant Shares issuable upon exercise of the Warrants as of the Event Date,
      multiplied by (y) the closing market price of the Company’s Common Stock on
      the Event Date; provided,
      however,
      that
      the total amount of payments pursuant to this Section
      3(a)(ii)
      shall
      not exceed, when aggregated with all such payments paid to the Holder and all
      other Holders, $3,000,000. The foregoing liquidated damages shall be calculated
      as of each monthly anniversary of each such Event Date if the applicable Event
      shall not have been cured by such date. If the Company fails to pay any
      liquidated damages pursuant to this Section in full within seven days after
      the
      date payable, the Company will pay interest thereon at a rate of 8% per annum
      (or such lesser maximum amount that is permitted to be paid by applicable law)
      to the Holder, accruing daily from the date such liquidated damages are due
      until such amounts, plus all such interest thereon, are paid in
      full.

     

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

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    (c) Notify
      the Holders of Registrable Securities to be sold as promptly as reasonably
      possible: (i) of any comments of the Commission with respect to, or any request
      by the Commission or any other federal or state governmental authority for
      amendments or supplements to, the Registration Statement or Prospectus; (ii)
      of
      the issuance by the Commission of any stop order suspending the effectiveness
      of
      the Registration Statement covering any or all of the Registrable Securities
      or
      the initiation of any Proceedings for that purpose; (iii) of the receipt by
      the
      Company of any notification with respect to the suspension of the qualification
      or exemption from qualification of any of the Registrable Securities for sale
      in
      any jurisdiction, or the initiation or threatening of any Proceeding for such
      purpose; and (iv) of the occurrence of any event that makes any statement made
      in the Registration Statement or Prospectus or any document incorporated or
      deemed to be incorporated therein by reference untrue in any material respect
      or
      that requires any revisions to the Registration Statement, Prospectus or other
      documents so that, in the case of the Registration Statement or the Prospectus,
      as the case may be, it will not contain any untrue statement of a material
      fact
      or omit to state any material fact required to be stated therein or necessary
      to
      make the statements therein, in the light of the circumstances under which
      they
      were made, not misleading.

     

    (d) Use
      its
      reasonable efforts to avoid the issuance of, or, if issued, obtain the
      withdrawal of: (i) any order suspending the effectiveness of the Registration
      Statement; or (ii) any suspension of the qualification (or exemption from
      qualification) of any of the Registrable Securities for sale in any
      jurisdiction, at the earliest practicable moment.

     

    (e) Promptly
      deliver to each Holder, without charge, to the extent requested by such Person,
      at least one conformed copy of each Registration Statement and each amendment
      thereto, including financial statements and schedules, all documents
      incorporated or deemed to be incorporated therein by reference and all exhibits
      (including those previously furnished or incorporated by reference) after the
      filing of such documents with the Commission.

     

    (f) On
      the
      effective date of the Registration Statement and any post-effective amendment
      thereto, notify the Holder and promptly, but in any event within two Business
      Days, deliver to each Holder, without charge, as many copies of the Prospectus
      or Prospectuses (including each form of prospectus) and each amendment or
      supplement thereto as such Person may reasonably request; and the Company hereby
      consents to the use of such Prospectus and each amendment or supplement thereto,
      during periods in which such Prospectus and each amendment or supplement thereto
      are effective, by each Holder in connection with the offering and sale of the
      Registrable Securities covered by such Prospectus and any amendment or
      supplement thereto.

     

    (g) Prior
      to
      any public offering of Registrable Securities, use its reasonable efforts to
      register or qualify or cooperate with the Holders in connection with the
      registration or qualification (or exemption from such registration or
      qualification) of such Registrable Securities for offer and sale under the
      securities or Blue Sky laws of such jurisdictions within the United States
      as
      any Holder requests in writing, to keep each such registration or qualification
      (or exemption therefrom) effective during the Effectiveness Period and to do
      any
      and all other acts or things necessary or advisable to enable the disposition
      in
      such jurisdictions of the Registrable Securities covered by a Registration
      Statement; provided,
      however,
      that
      the Company shall not be required to qualify generally to do business in any
      jurisdiction where it is not then so qualified or to take any action that would
      subject it to general service of process in any such jurisdiction where it
      is
      not then so subject or subject the Company to any material tax in any such
      jurisdiction where it is not then so subject.

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    (h) Cooperate
      with the Holders to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities to be sold pursuant to a
      Registration Statement.

     

    (i) Upon
      the
      occurrence of any event contemplated by Section 3(c),
      as
      promptly as reasonably possible, prepare a supplement or amendment, including
      a
      post-effective amendment, to the Registration Statement or a supplement to
      the
      related Prospectus or any document incorporated or deemed to be incorporated
      therein by reference, and file any other required document so that, as
      thereafter delivered, neither the Registration Statement nor such Prospectus
      will contain an untrue statement of a material fact or omit to state a material
      fact required to be stated therein or necessary to make the statements therein,
      in the light of the circumstances under which they were made, not
      misleading.

     

    (j) During
      the Effectiveness Period, maintain the listing of such Registrable Securities
      on
      the Trading Market or another Eligible Market; 

     

    (k) If
      the
      Registration Statement refers to any Holder by name or otherwise as the holder
      of any securities of the Company, then such Holder shall have the right to
      require (if such reference to such Holder by name or otherwise is not required
      by the Securities Act or any similar federal statute then in force) the deletion
      of the reference to such Holder in any amendment or supplement to the
      Registration Statement filed or prepared subsequent to the time that such
      reference ceases to be required.

     

    Each
      Holder covenants and agrees that: (i) it will not sell any Registrable
      Securities pursuant to the Registration Statement until it has received copies
      of the Prospectus as then amended or supplemented as contemplated in
Section 3(f)
      and
      written notice from the Company that such Registration Statement and any
      post-effective amendments thereto have become effective as contemplated by
      Section 3(f);
      (ii) it
      and its officers, directors or Affiliates, if any, will comply with the
      prospectus delivery and all other requirements of the Securities Act as
      applicable to them in connection with sales of Registrable Securities pursuant
      to the Registration Statement; and (iii) it will furnish to the Company
      information regarding such Holder and the distribution of such Registrable
      Securities as is required by law to be disclosed in the Registration Statement,
      and the Company may exclude from such registration the Registrable Securities
      of
      any such Holder who fails to furnish such information prior to the earlier
      of
      the time the Registration Statement is filed or a reasonable time after
      receiving such request.

     

    Each
      Holder agrees by its acquisition of such Registrable Securities that, upon
      receipt of a notice from the Company of the occurrence of any event of the
      kind
      described in Section 3(c)(i),
      3(c)(ii),
      3(c)(iii),
      or
3(c)(iv),
      such
      Holder will forthwith discontinue disposition of such Registrable Securities
      under the Registration Statement until such Holder’s receipt of the copies of
      the supplemented Prospectus and/or amended Registration Statement contemplated
      by Section 3(i),
      or
      until it is advised in writing (the “Advice”)
      by the
      Company that the use of the applicable Prospectus may be resumed, and, in either
      case, has received copies of any additional or supplemental filings that are
      incorporated or deemed to be incorporated by reference in such Prospectus or
      Registration Statement.

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    (l) Not
      sell,
      offer for sale or solicit offers for sale or to buy, and shall use its best
      efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
      or to buy or otherwise negotiate in respect of any security (as defined in
      Section 2 of the Securities Act) that would be integrated with the offer or
      sale
      of the Registrable Securities in a manner that would require the registration
      under the Securities Act of the sale of the Securities to the Holders or that
      would be integrated with the offer or sale of the Securities for purposes of
      the
      rules and regulations of any Trading Market.

     

    (m) Not
      permit any of its security holders (other than the Holder in such capacity
      pursuant hereto) to include securities of the Company in the Registration
      Statement other than the Registrable Securities, and the Company shall not
      after
      the date hereof enter into any agreement providing any such right to any of
      its
      security holders.

     

    (n) Notwithstanding
      anything to the contrary in this Section
      3,
      if
at
      any
      time after the date the Registration Statement is declared effective the Company
      furnishes to the Holder a certificate signed by the Company’s chief executive
      officer stating that in the good faith judgment of the Company’s Board of
      Directors it would be materially detrimental to the Company and its stockholders
      for such Registration Statement to remain effective for as long as such
      Registration Statement otherwise would be required to remain effective, because
      such action would (i) materially interfere with a significant acquisition,
      corporate reorganization, or other similar transaction involving the Company;
      (ii) require premature disclosure of material non-public information that the
      Company has a bona fide business purpose for preserving as confidential; or
      (iii) render the Company unable to comply with requirements under the
      Securities Act or Exchange Act,
      then the
      Company shall have the right to suspend
      effectiveness of a Registration Statement for a period not to exceed 15
      consecutive Business Days; provided,
      however,
      that
      the Company may not suspend its obligation under this Section 3(n)
      for more
      than 30 Business Days in the aggregate during any 12-month period; and
provided,
      further,
      that no
      such postponement or suspension shall be permitted for consecutive 15 Business
      Day periods arising out of the same set of facts, circumstances or
      transactions.

     

    4. Registration
      Expenses.
      All
      fees and expenses incident to the performance of or compliance with this
      Agreement by the Company, except as and to the extent specified in this
Section 4,
      shall
      be borne by the Company whether or not the Registration Statement is filed
      or
      becomes effective and whether or not any Registrable Securities are sold
      pursuant to the Registration Statement. The fees and expenses referred to in
      the
      foregoing sentence shall include, without limitation: (i) all registration
      and
      filing fees; (ii) printing expenses (including, without limitation,
      expenses of printing certificates for Registrable Securities and of printing
      prospectuses if the printing of prospectuses is requested by the holders of
      a
      majority of the Registrable Securities included in the Registration Statement);
      (iii) messenger, telephone and delivery expenses; (iv) fees and
      disbursements of counsel for the Company; (v) Securities Act liability
      insurance, if the Company so desires such insurance; and (vi) fees and expenses
      of all other Persons retained by the Company in connection with the consummation
      of the transactions contemplated by this Agreement, including, without
      limitation, the Company’s independent public accountants (including the expenses
      of any comfort letters or costs associated with the delivery by independent
      public accountants of a comfort letter or comfort letters). In addition, the
      Company shall be responsible for all of its internal expenses incurred in
      connection with the consummation of the transactions contemplated by this
      Agreement (including, without limitation, all salaries and expenses of its
      officers and employees performing legal or accounting duties), the expense
      of
      any annual audit, and the fees and expenses incurred in connection with the
      listing of the Registrable Securities on any securities exchange as required
      hereunder. Except as otherwise expressly provided in Section 5
      below,
      any fees or expenses incurred by Holder or its legal counsel or Holder’s other
      advisors or consultants in connection with any review of the Registration
      Statement or with respect to any other matters related to this Agreement shall
      be borne solely by Holder.

    
      
        
        

      

      
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    5. Indemnification.

     

    (a) Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless the Holder, the officers, directors, agents, brokers (including
      brokers who offer and sell Registrable Securities as principal as a result
      of a
      pledge or any failure to perform under a margin call of Common Stock),
      investment advisors and employees of each of them, each Person who controls
      the
      Holder (within the meaning of Section 15 of the Securities Act or
      Section 20 of the Exchange Act) and the officers, directors, agents and
      employees of each such controlling Person, to the fullest extent permitted
      by
      applicable law, from and against any and all losses, claims, damages,
      liabilities, costs (including, without limitation, costs of preparation and
      attorneys’ fees) and expenses (collectively, “Losses”)
      (as
      determined by a court of competent jurisdiction in a final judgment not subject
      to appeal or review), as incurred, arising out of or based upon any untrue
      or
      alleged untrue statement of a material fact contained in the Registration
      Statement, any Prospectus or any form of prospectus or in any amendment or
      supplement thereto or in any preliminary prospectus, or arising solely out
      of or
      based upon any omission or alleged omission of a material fact required to
      be
      stated therein or necessary to make the statements therein (in the case of
      any
      Prospectus or form of prospectus or supplement thereto, in the light of the
      circumstances under which they were made) not misleading, except to the extent,
      but only to the extent, that such untrue statements or omissions are based
      upon
      information regarding the Holder furnished in writing to the Company by the
      Holder expressly for use therein. The Company shall notify the Holder promptly
      of the institution, threat or assertion of any Proceeding of which the Company
      is aware in connection with the transactions contemplated by this
      Agreement.

     

    (b) Indemnification
      by Holder.
      The
      Holder shall indemnify and hold harmless the Company, the directors, officers,
      agents and employees, each Person who controls the Company (within the meaning
      of Section 15 of the Securities Act and Section 20 of the Exchange
      Act), and the directors, officers, agents or employees of such controlling
      Persons, to the fullest extent permitted by applicable law, from and against
      all
      Losses (as determined by a court of competent jurisdiction in a final judgment
      not subject to appeal or review), as incurred, arising solely out of or based
      solely upon any untrue statement or alleged untrue statement of a material
      fact
      contained in the Registration Statement, any Prospectus, or any form of
      prospectus or form of prospectus or in any amendment or supplement thereto
      or in
      any preliminary prospectus, or arising solely out of or based solely upon any
      omission of a material fact required to be stated therein or necessary to make
      the statements therein (in the case of any Prospectus or supplement thereto,
      in
      the light of the circumstances under which they were made) not misleading,
      to
      the extent, but only to the extent, that such untrue statement or omission
      or
      alleged untrue statement or omission is contained in information so furnished
      by
      the Holder in writing to the Company expressly for inclusion in the Registration
      Statement or such Prospectus. In no event shall the liability of any selling
      Holder hereunder be greater in amount than the dollar amount of the net proceeds
      received by such Holder upon the sale of the Registrable Securities giving
      rise
      to such indemnification obligation.

     

    (c) Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party promptly shall notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall assume the defense thereof, including
      the employment of counsel reasonably satisfactory to the Indemnified Party
      and
      the payment of all fees and expenses incurred in connection with defense
      thereof; provided,
      however,
      that
      the failure of any Indemnified Party to give such notice shall not relieve
      the
      Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
      except to the extent that such failure shall have proximately and materially
      adversely prejudiced the Indemnifying Party.

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; or (2) the Indemnifying Party shall have failed promptly to assume
      the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and such Indemnified Party shall have been advised
      by counsel that a conflict of interest is likely to exist if the same counsel
      were to represent such Indemnified Party and the Indemnifying Party (in which
      case, if such Indemnified Party notifies the Indemnifying Party in writing
      that
      it elects to employ separate counsel at the expense of the Indemnifying Party,
      the Indemnifying Party shall not have the right to assume the defense thereof
      and such counsel shall be at the expense of the Indemnifying Party). The
      Indemnifying Party shall not be liable for any settlement of any such Proceeding
      effected without its written consent, which consent shall not be unreasonably
      withheld or delayed. No Indemnifying Party shall, without the prior written
      consent of the Indemnified Party, effect any settlement of any pending
      Proceeding in respect of which any Indemnified Party is a party, unless such
      settlement includes an unconditional release of such Indemnified Party from
      all
      liability on claims that are the subject matter of such Proceeding.

     

    All
      fees
      and expenses of the Indemnified Party (including reasonable fees and expenses
      to
      the extent incurred in connection with investigating or preparing to defend
      such
      Proceeding in a manner not inconsistent with this Section 5)
      shall
      be paid to the Indemnified Party, as incurred, within 10 Business Days of
      written notice thereof to the Indemnifying Party (regardless of whether it
      is
      ultimately determined that an Indemnified Party is not entitled to
      indemnification hereunder; provided,
      however,
      that
      the Indemnifying Party may require such Indemnified Party to undertake to
      reimburse all such fees and expenses to the extent it is finally judicially
      determined that such Indemnified Party is not entitled to indemnification
      hereunder).

     

    (d) Contribution.
      If a
      claim for indemnification under Section 5(a)
      or
Section 5(b)
      is
      unavailable to an Indemnified Party (by reason of public policy or otherwise),
      then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
      shall contribute to the amount paid or payable by such Indemnified Party as
      a
      result of such Losses, in such proportion as is appropriate to reflect the
      relative fault of the Indemnifying Party and Indemnified Party in connection
      with the actions, statements or omissions that resulted in such Losses as well
      as any other relevant equitable considerations. The relative fault of such
      Indemnifying Party and Indemnified Party shall be determined by reference to,
      among other things, whether any action in question, including any untrue or
      alleged untrue statement of a material fact or omission or alleged omission
      of a
      material fact, has been taken or made by, or relates to information supplied
      by,
      such Indemnifying, Party or Indemnified Party, and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. The amount paid or payable by a party as a result
      of any Losses shall be deemed to include, subject to the limitations set forth
      in Section 5(c),
      any
      reasonable attorneys’ or other reasonable fees or expenses incurred by such
      party in connection with any Proceeding to the extent such party would have
      been
      indemnified for such fees or expenses if the indemnification provided for in
      this Section was available to such party in accordance with its
      terms.

    
      
        
        

      

      
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    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d)
      were
      determined by pro rata allocation or by any other method of allocation that
      does
      not take into account the equitable considerations referred to in the
      immediately preceding paragraph. Notwithstanding
      the provisions of this Section
      5(d),
      no
      Holder shall be required to contribute, in the aggregate, any amount in excess
      of the amount of the proceeds actually received by such Holder from the sale
      of
      the Registrable Securities subject to the proceeding. No
      Person
      guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
      of the Securities Act) shall be entitled to contribution from any Person who
      was
      not guilty of such fraudulent misrepresentation.

     

    The
      indemnity and contribution agreements contained in this Section are in addition
      to any liability that the Indemnifying Parties may have to the Indemnified
      Parties. Notwithstanding the foregoing, the obligations of the Holders herein
      shall be the several, and not joint, obligation of each Holder as to itself
      and
      not as to any other Holder.

     

    6. Miscellaneous.

     

    (a) Remedies.
      Except
      as provided in Section
      3(a)(ii)
      with
      respect to the occurrence of an Event (for which only liquidated damages apply
      and which is the exclusive remedy upon the occurrence of an Event):

     

    (i) In
      the
      event of a breach by the Company or by the Holder, of any of their obligations
      under this Agreement, the Holder or the Company, as the case may be, in addition
      to being entitled to exercise all rights granted by law and under this
      Agreement, including recovery of damages, will be entitled to specific
      performance of its rights under this Agreement.

     

    (ii) The
      Company and the Holder agree that monetary damages would not provide adequate
      compensation for any losses incurred by reason of a breach by it of any of
      the
      provisions of this Agreement and hereby further agrees that, in the event of
      any
      action for specific performance in respect of such breach, it shall waive the
      defense that a remedy at law would be adequate.

     

    (iii) The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

     

    (b) No
      Inconsistent Agreements.
      Neither
      the Company nor any of its subsidiaries has, as of the date hereof entered
      into
      and currently in effect, nor shall the Company or any of its subsidiaries,
      on or
      after the date of this Agreement, enter into any agreement with respect to
      its
      securities that is inconsistent with the rights granted to the Holder in this
      Agreement or otherwise conflicts with the provisions hereof. 

     

    (c) Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and each of the Holders. 

    
      
        
        

      

      
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    (d) 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 earlier of: (i) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile telephone number specified for
      notice prior to 5:00 p.m., California time, on a Business Day; (ii) the Business
      Day after the date of transmission, if such notice or communication is delivered
      via facsimile at the facsimile telephone number specified for notice later
      than
      5:00 p.m., California time, on any date and earlier than 11:59 p.m., California
      time, on such date; (iii) the Business Day following the date of mailing, if
      sent by nationally recognized overnight courier service; and (iv) actual receipt
      by the party to whom such notice is required to be given. The addresses for
      such
      communications shall be:

     

    If
      to the
      Company:

     

    Pacific
      Ethanol, Inc.

    5711
      N.
      West Avenue

    Fresno,
      California 93711

    Attention:
      General Counsel

    Telecopier:
      (559) 435-1478

    Telephone:
      (559) 435-1771

     

    If
      to the
      Holder:

     

    Eagle
      Energy LLC

    2113
      Pebble Beach Lane

    Brandon,
      South Dakota 57005

    Attn.
      President

    Facsimile:_______________

    Phone:_________________

     

    with
      a
      copy to:

     

    Robert
      Hensley

    Dorsey
      & Whitney LLP

    50
      South
      Sixth Street

    Minneapolis,
      MN 55402

    Facsimile:
      612-340-7800

    Phone:
      612-340-2655

     

    or
      to
      such other address or addresses or facsimile number or numbers as any such
      party
      may most recently have designated in writing to the other parties hereto by
      such
      notice. 

     

    (e) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns and shall inure to the benefit of the
      Holder and its successors and permitted assigns. Holder may assign its rights
      hereunder in the manner and to the Persons as permitted under this Agreement
      and
      the Purchase Agreement. The Company may assign its rights and obligations
      hereunder in connection with a sale of all or substantially all of its assets
      or
      in connection with a merger, consolidation or other similar corporate
      transaction.

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    (f) Assignment
      of Registration Rights.
      The
      rights of the Holder hereunder, including the right to have the Company register
      for resale Registrable Securities in accordance with the terms of this
      Agreement, shall be automatically assignable by the Holder to any Person to
      whom
      the Holder transfers all or a portion of the Registrable Securities if: (i)
      the
      Holder agrees in writing with the transferee or assignee to assign such rights,
      and a copy of such agreement is furnished to the Company within a reasonable
      time after such assignment; (ii) the Company is, within a reasonable time after
      such transfer or assignment, furnished with written notice of (x) the name
      and
      address of such transferee or assignee, and (y) the securities with respect
      to
      which such registration rights are being transferred or assigned; (iii)
      following such transfer or assignment the further disposition of such securities
      by the transferee or assignees is restricted under the Securities Act and
      applicable state securities laws; (iv) at or before the time the Company
      receives the written notice contemplated by clause (ii) of this Section, the
      transferee or assignee agrees in writing with the Company to be bound by all
      of
      the provisions of this Agreement through a joinder agreement or another form
      of
      agreement reasonably acceptable to the Company; (v) such transfer shall
      have been made in accordance with the applicable requirements of the Purchase
      Agreement and the Warrants; and, upon the Company’s request, Holder and any
      proposed transferee shall provide the Company with such written representations,
      warranties, assurances and information requested by the Company so as to allow
      the Company to verify compliance with the Securities Act and qualification
      under
      such exemption in connection with such proposed transfer. In addition, each
      Holder shall have the right to assign its rights hereunder to any other Person
      with the prior written consent of the Company, which consent shall not be
      unreasonably withheld. The rights to assignment shall apply to the Holders
      (and
      to subsequent) successors and assigns.

     

    (g) Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    (h) Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California, without regard to principles of conflicts of law
      thereof.

     

    (i) Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held to be
      invalid, illegal, void or unenforceable in any respect, the remainder of the
      terms, provisions, covenants and restrictions set forth herein shall remain
      in
      full force and effect and shall in no way be affected, impaired or invalidated,
      and the parties hereto shall use their reasonable efforts to find and employ
      an
      alternative means to achieve the same or substantially the same result as that
      contemplated by such term, provision, covenant or restriction. It is hereby
      stipulated and declared to be the intention of the parties that they would
      have
      executed the remaining terms, provisions, covenants and restrictions without
      including any of such that may be hereafter declared invalid, illegal, void
      or
      unenforceable.

     

    (j) Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    (k) Independent
      Nature of Holders’ Obligations and Rights.
      The
      obligations of each Holder hereunder are several and not joint with the
      obligations of any other Holder hereunder, and no Holder shall be responsible
      in
      any way for the performance of the obligations of any other Holder hereunder.
      Nothing contained herein or in any other agreement or document delivered at
      any
      closing, and no action taken by any Holder pursuant hereto or thereto, shall
      be
      deemed to constitute the Holders as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Holders
      are in any way acting in concert with respect to such obligations or the
      transactions contemplated by this Agreement. Each Holder shall be entitled
      to
      protect and enforce its rights, including without limitation the rights arising
      out of this Agreement, and it shall not be necessary for any other Holder to
      be
      joined as an additional party in any proceeding for such purpose.

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Registration Rights
      Agreement effective as of the date indicated above.

    

      
        	
                COMPANY:

              	 PACIFIC
                ETHANOL, INC.
	 	 	 
	 	 	 
	 	
                By:

              	
                /s/
                  Neil M.
                  Koehler                                                 
                  

              
	 	 	
                Neil
                  M. Koehler, CEO

              
	 	 	 
	 	 
	
                SELLER:

              	 EAGLE
                ENERGY, LLC
	 	 	 
	 	 	 
	 	
                By:

              	
                /s/
                  David M.
                  Fink                                                    
                  

              
	 	 	
                David
                  M. Fink, President

              
	 	 	 
	 	 	 
	 	Address:
	 	 	 
	 	2215
                E. Redwood
                Blvd.                                                    
                
	 	 Street
                Address
	 	 	 
	 	Brandon,
                SD
                57005                                                           
	 	City,
                State and Zip Code

      

    

    
 

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    DEFINITIONS

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Advice”
shall
      have meaning set forth in Section 3(k).

     

    “Affiliate”
means,
      with respect to any Person, any other Person that directly or indirectly
      controls or is controlled by or under common control with such Person. For
      the
      purposes of this definition, “control,”
when
      used with respect to any Person, means the possession, direct or indirect,
      of
      the power to direct or cause the direction of the management and policies of
      such Person, whether through the ownership of voting securities, by contract
      or
      otherwise; and the terms of “affiliated,”
      “controlling”
and
      “controlled”
have
      meanings correlative to the foregoing.

     

    “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a legal holiday
      or a
      day on which banking institutions in the State of California generally are
      authorized or required by law or other government actions to close.

     

    “Closing
      Date”
means
      the date of the closing under the Purchase Agreement.

     

    “Closing
      Shares”
means
      the shares of Common Stock issued to the Seller on the Closing Date pursuant
      to
      the Purchase Agreement.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the Company’s common stock, $.001 par value per share.

     

    “Effectiveness
      Date”
means
      the 120th
      calendar
      day following the date of the Purchase Agreement.

     

    “Effectiveness
      Period”
shall
      have the meaning set forth in Section 2.

     

    “Eligible
      Market”
      means
      the New
      York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select
      Market, the NASDAQ Global Market or the NASDAQ Capital Market.

     

    “Event”
shall
      have the meaning set forth in Section
      3(a)(ii).

     

    “Event
      Date”
shall
      have the meaning set forth in Section
      3(a)(ii).

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Filing
      Date”
means
      the tenth Business Day following the Closing Date.

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    “Holder”
or
      “Holders”
means
      the holder or holders, as the case may be, from time to time, whether direct
      or
      beneficially, of Registrable Securities pursuant to this Agreement, including,
      without limitation, Seller and any of its permitted transferees.

     

    “Indemnified
      Party”
shall
      have the meaning set forth in Section 5(c).

     

    “Indemnifying
      Party”
shall
      have the meaning set forth in Section 5(c).

     

    “Losses”
shall
      have the meaning set forth in Section 5(a).

     

    “Person”
means
      an individual or a corporation, partnership, trust, incorporated or
      unincorporated association, joint venture, limited liability company, joint
      stock company, government (or an agency or political subdivision thereof) or
      other entity of any kind.

     

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

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

     

    “Registrable
      Securities”
means:
      (i) the Closing Shares; (ii) Warrant Shares; and (iii) any securities
      issued or issuable with respect to such Warrant Shares by way of a stock
      dividend or stock split or in connection with a combination of shares,
      recapitalization, merger, consolidation or other reorganization with respect
      to
      any of the securities referenced above.

     

    “Registration
      Statement”
means
      the registration statements contemplated by Section 2,
      including the Prospectus, amendments and supplements to such registration
      statement or Prospectus, including pre- and post-effective amendments, all
      exhibits thereto, and all material incorporated by reference in such
      registration statement.

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Rule
      415”
means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended.

     

    “Trading
      Market”
means
      the
      NASDAQ Global Market.

     

    “Warrants”
means
      the Warrant to Purchase Common Stock issued to the Seller (including any
      Warrants subsequently held by any Holder).

     

    “Warrant
      Shares”
means
      the shares of Common Stock issued or issuable upon exercise of the
      Warrants.

     

     

    

      A-2

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