Document:

paceth_8k-ex1004.htm

     

    EXHIBIT
10.4

    
      

       

      REGISTRATION RIGHTS AGREEMENT

       

      THIS REGISTRATION RIGHTS AGREEMENT
(the “Agreement”)
dated as of March 27, 2008, is by and among Pacific Ethanol, Inc., a Delaware
corporation (the “Company”), and Lyles United,
LLC, a Delaware limited liability company (the “Investor”).

       

      WHEREAS, the Company and the
Investor have entered into a Securities Purchase Agreement dated March 18, 2008
(and, as amended from time to time, the “Purchase Agreement”),
providing for the purchase by the Investor of (i) 2,051,282 shares of the
Company’s Series B Cumulative Convertible Preferred Stock (the “Series B Preferred
Stock”) (such shares, together with any additional shares of the
Company’s Series B Preferred Stock issued as a dividend thereon, the “Shares”), and (ii) a
warrant (the “Warrant”)
to acquire up to 3,076,923 shares (the “Warrant Shares”) of the
Company’s common stock, par value $0.001 per share (the “Common Stock”);
and

       

      WHEREAS, simultaneously with,
and as a condition to, the closing of the transactions contemplated in the
Purchase Agreement, the Company and the Investor desire to enter into this
Agreement to provide certain registration and other rights with respect to the
Registrable Securities (as hereinafter defined).

       

      NOW, THEREFORE, in
consideration of the mutual covenants and agreements contained in this Agreement
and the Purchase Agreement, and intending to be legally bound, the parties
hereto agree as follows:

       

      1.           Definitions.  As
used in this Agreement, the following terms have the meanings indicated below or
in the referenced sections of this Agreement:

       

      “Adjustment Provisions” shall
have the meaning set forth in Section 3(a).

       

      “Affiliate” shall have the
meaning set forth in the Purchase Agreement.

       

      “Agreement” shall have the
meaning set forth in the recitals hereof.

       

      “Business Day shall mean any
day other than Saturday, Sunday or other day on which commercial banks in the
State of California are authorized or required by law to remain
closed.

       

      “Closing” shall have the
meaning set forth in the Purchase Agreement.

       

      “Commission” shall mean the
United States Securities and Exchange Commission.

       

      “Common Stock” shall have the
meaning set forth in the recitals hereof.

       

      “Company” shall have the
meaning set forth in the recitals hereof.

       

      “Conversion Shares” shall have
the meaning set forth in the Purchase Agreement.

       

      “Demand Registration” shall
have the meaning set forth in Section 3(a).

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       “Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.

       

      “FINRA” shall mean the
Financial Industry Regulatory Authority, Inc.

       

      “GAAP” shall mean generally
accepted accounting principals, as in effect in the United States of America
from time to time applied on a consistent basis.

       

      “Investor” shall have the
meaning set forth in the recitals hereof, and its successors, assigns and
transferees.

       

      “Investor Securities” shall
mean the Shares, the Warrant Shares, the Conversion Shares and the Note Warrant
Shares.

       

      “Majority of the Registrable
Securities” shall have the meaning set forth in Section 2(b).

       

      “Note Warrant Shares” shall
mean 100,000 shares of Common Stock acquired upon the exercise of the warrant
issued in connection with that certain Secured Promissory Note by and between
the Company and the Investor, dated November 28, 2007.

       

      “Person” shall have the
meaning set forth in the Purchase Agreement.

       

      “Piggyback Registration” shall
have the meaning set forth in Section 4(a).

       

      “Purchase Agreement” shall have the meaning set
forth in the recitals hereof.

       

      “Registrable Securities” shall
mean:  (i) the Conversion Shares; (ii) the Warrant Shares;
(iii) the Note Warrant Shares; and (iv) any securities issued or
issuable with respect to the Conversion Shares, Warrant Shares or Note 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; provided, however, that a
Registrable Security ceases to be a Registrable Security when (a) it is
registered under the Securities Act and disposed of in accordance with the
registration statement covering it or (b) it is sold or transferred in
accordance with the requirements of Rule 144 (or similar provisions then in
effect) promulgated by the Commission under the Securities Act (“Rule 144”).

       

      “Registration Expenses” shall
have the meaning set forth in Section 6(a).

       

      “Registration Statement” shall
mean any registration statements contemplated by Section 3 and
any additional registration statements contemplated by Section 4,
including (in each case) the prospectus, amendments and supplements to such
registration statement or prospectus, all exhibits attached thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.

       

      “Representatives” of a Person
means the officers, employees, independent accountants, independent legal
counsel and other representatives of such Person.

       

      
        
          
          

        

        
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      “Rule 415” shall mean Rule 415
(or similar provisions then in effect) promulgated by the Commission under the
Securities Act.

       

      “Securities Act” shall mean
the Securities Act of 1933, as amended, and the rules and regulations
thereunder.

       

      “Shares” shall have the
meaning set forth in the recitals hereof.

       

      “Subsidiary” shall have the
meaning set forth in the Purchase Agreement.

       

      “Termination Date” shall mean
the date that the Investor and its Affiliates, as a group, own less than 10% of
the Investor Securities.  For purposes of calculating such percentage
of ownership, each Share shall be deemed to be
equivalent to the number of shares of Common Stock into which they are
convertible.

       

      “Warrant” shall have the
meaning set forth in the Purchase Agreement.

       

      “Warrant Shares” shall have the
meaning set forth in the Purchase Agreement.

       

      2.           Securities
Subject to this Agreement.

       

      (a)           Holders
of Registrable Securities.  A Person is deemed to be a holder
of Registrable Securities whenever that Person owns, directly or beneficially,
or has the right to acquire, Registrable Securities, disregarding any legal
restrictions upon the exercise of that right.

       

      (b)           Majority
of the Registrable Securities.  As used in this Agreement, the
term “Majority of the
Registrable Securities” means more than 50% of the Registrable Securities
being registered or, where the context requires, a majority in interest of the
Registrable Securities.

       

      3.           Demand
Registration.

       

      (a)           Request
for Registration.  Subject to the provisions of Section 3(b), at
any time after the first anniversary of the Closing, (A) one or more holders of
the Registrable Securities representing a Majority of the Registrable Securities
may demand that the Company register all or part of its Registrable Securities
under the Securities Act (a “Demand Registration”) on Form
S-1 (or a similar form then in effect) promulgated by the Commission under the
Securities Act, provided that the Company shall not be obligated to effect a
Demand Registration (i) during the one hundred eighty (180) days period
commencing with the date of any secondary public offering or (ii) if the Company
delivers notice to the holders of Registrable Securities within thirty (30) days
of any registration request of its intent to file a registration statement for a
secondary public offering within sixty (60) days, during the period starting
with the date sixty (60) days prior to the Company’s good faith estimate of the
date of filing of, and ending on a date one hundred eighty (180) days after the
date of such secondary public offering, provided that the Company is actively
employing in good faith commercially best efforts to cause the registration
statement covering such offering to become effective and (B) one or more holders
of Registrable Securities representing a Majority of the Registrable Securities
may request a Demand Registration on Form S-3 (or a similar form then in
effect), provided that the Registrable Securities to be covered by any such Form
S-3 shall be expected to result in aggregate gross proceeds of not less than
$1,000,000.  Within ten (10) days after receipt of a demand, the
Company will notify in writing all holders of Registrable Securities of the
demand.  Any holder who wants to include its

       

      
        
          
          

        

        
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       Registrable
Securities in the Demand Registration must notify the Company within ten (10)
Business Days of receiving the notice of the Demand
Registration.  Except as provided in this Section 3, the
Company will include in all Demand Registrations all Registrable Securities for
which the Company receives the timely written requests for
inclusion.  Any such request to be included in a Demand Registration
shall not be counted as a Demand Registration under this Section 3.  All
demands or requests made pursuant to this Section 3(a)
must specify the number of Registrable Securities to be registered and the
intended method of disposing of the Registrable Securities.  The
Company acknowledges that the plan of distribution contemplated by any such
Registration Statement shall include offers and sales through underwriters or
agents, offers and sales directly to investors, block trades and such other
methods of offer and sale and that offers and sales may be on a continued or
delayed basis under Rule 415. The Company will use its
commercially best efforts to cause such Registration Statement to be declared
effective by the Commission and to remain effective until
such time as all of the shares of Common Stock designated thereunder are sold or
the holders thereof are entitled to rely on Rule 144 for sales of Registrable
Securities without registration under the Securities Act and without compliance
with the public information, sales volume, manner of sale or notice requirements
of Rule 144(c), (e), (f) or (h).  The Company acknowledges that at the
time the Company files any Registration Statement pursuant to this Section 3 the
number of Registrable Securities may not be fixed due to the antidilution and
other provisions related to the Shares (“Adjustment
Provisions”).  Accordingly, the Company agrees that it will
register the number of Conversion Shares, Warrant Shares and Note Warrant Shares
held by or issuable to the Investor as of the date of the filing of the
Registration Statement and, to the extent permitted under the applicable rules
under the Securities Act, the additional number of shares of Common Stock
issuable pursuant to the Adjustment Provisions.  The Company agrees
that, thereafter, it will file, as soon as practicable but in no event later
than thirty (30) days after the issuance of additional Registrable Securities
that are not covered by such Registration Statement (due to the effect of the
Adjustment Provisions) such amendments and/or supplements to the Registration
Statement, and such additional Registration Statements as are necessary in order
to ensure that at least 100% of the Conversion Shares, Warrant Shares and Note
Warrant Shares held by or issuable to the Investor are included in a
Registration Statement, and the Company will use its commercially best efforts
to cause such amendments, supplements and additional Registration Statements to
be declared effective within ninety (90) days following the issuance of such
additional Registrable Securities that are not otherwise covered by an effective
Registration Statement.

       

      (b)           Number of
Demands.  The holders of Registrable Securities shall have the
right to two (2) Demand Registrations on Form S-1 (or a similar form then in
effect) and shall have the right to an unlimited number of Demand Registrations
on Form S-3 (or a similar form then in effect); provided, however, that the
Company shall not be obligated to effect more than one (1) Demand Registration
on Form S-3 in any calendar year.

       

      (c)           Registration
Expenses.  The Company shall pay or reimburse to the holders of
the Registrable Securities included in a Demand Registration all Registration
Expenses of those holders in connection with any Demand Registration (including
the reasonable fees and disbursements of one counsel for such holders in
connection with each such Demand Registration not to exceed $25,000 per
registration, as described in Section 6).

       

      
        
          
          

        

        
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      (d)           Selection
of Underwriters; Priority on Demand Registrations.  If the
holders of Registrable Securities initiating a Demand Registration intend to
distribute Registrable Securities covered by their request by means of an
underwriting, such holders shall, after consultation with the Company, select
the investment banker(s) and manager(s) that will administer the offering;
provided, that the Company shall have given its prior written consent to such
selection (which consent shall be not unreasonably withheld).  The
Company and the holders of Registrable Securities whose shares are being
registered shall enter into a customary underwriting agreement with such
investment banker(s) and manager(s).

       

      If the managing underwriter advises the
Company, in writing or otherwise, that an underwriters’ over-allotment option,
not in excess of fifteen percent (15%) of the total offering to be so effected,
is necessary or desirable for the marketing of such offering, all Registrable
Securities which are to be included in such offering pursuant to this Section 3(d) and
any other securities shall be allocated pro rata to the primary portion of such
offering and the underwriters’ over-allotment portion on the basis of the total
number of Registrable Securities and other securities requested to be included
in the registration.

       

      Notwithstanding any other provision of
this Section 3,
if the managing underwriter advises the Company, in writing or otherwise, that
the total number or dollar amount of securities requested to be included in the
registration exceeds the number or dollar amount of securities that can be sold,
the Company will include the securities in the registration in the following
order of priority: (i) first, among all holders requesting to include
Registrable Securities in the Demand Registration (allocated pro rata among the
holders of Registrable Securities requested to be included in the registration,
on the basis of the dollar amount or number of Registrable Securities requested
to be included, as the case may be); (ii) second, any other securities (provided
they are of the same class as the securities sold by the Company) requested to
be included, allocated among the holders of such securities in such proportions
as the Company and those holders may agree; and (iii) third, to the Company for
its account.

       

      If any holder of Registrable Securities
(other than the holder making the demand) disapproves of the terms of the
underwriting, such holder may withdraw therefrom by giving written notice to the
Company and the managing underwriter.

       

      (e)           Delay in
Filing.  Notwithstanding the foregoing, the Company may delay
in filing a registration statement in connection with a Demand Registration and
may withhold efforts to cause the registration statement to become effective, if
the Company determines in good faith that such registration might involve
initial or continuing disclosure obligations that the Board of Directors of the
Company determines, in good faith, will not be in the best interest of the
Company’s stockholders.  The Company may exercise such right to delay
or withhold efforts not more than once in any twelve (12) month period and for
not more than ninety (90) days at a time.  If, after a registration
statement becomes effective, the Company advises the holders of registered
shares that the Company considers it appropriate for the registration statement
to be amended, the Company shall use its best efforts to amend such registration
statement, and the holders of such shares shall suspend any further sales of
their registered shares until the Company advises them that the amended
registration statement has been declared effective.

       

      
        
          
          

        

        
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      (f)           Effective
Demand Registration.  A registration shall not constitute a
Demand Registration until it has become effective and remains continuously
effective for the lesser of (i) the period during which all Registrable
Securities registered in the Demand Registration are sold and (ii) three hundred
sixty (360) days; provided, however, that a
registration shall not constitute a Demand Registration if (x) after such Demand
Registration has become effective, such registration or the related offer, sale
or distribution of Registrable Securities thereunder is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the holder
requesting the Demand Registration and such interference is not thereafter
eliminated, or (y) the conditions specified in the underwriting agreement, if
any, entered into in connection with such Demand Registration are not satisfied
or waived, other than by reason of a failure on the part of the holder
requesting the Demand Registration.

       

      4.           Piggyback
Registrations.

       

      (a)           Right to
Piggyback.  Whenever the Company proposes to register any of
its securities in an underwritten offering under the Securities Act, whether for
its own account or for the account of another stockholder (except for the
registration of securities to be offered pursuant to an employee benefit plan on
Form S-8, pursuant to a registration made on Form S-4 or any successor forms
then in effect and except for the registration of securities held by Cascade
Investment, L.L.C. (“Cascade”) pursuant to the
terms and conditions of that certain Registration Rights and Stockholders
Agreement dated as of April 13, 2006 between the Company and Cascade) at any
time other than pursuant to a Demand Registration and the registration form to
be used may be used for the registration of the Registrable Securities (a “Piggyback Registration”), it
will so notify in writing all holders of Registrable Securities no later than
the earlier to occur of (i) the tenth (10th) day following the Company’s receipt
of notice of exercise of other demand registration rights, or (ii) forty-five
(45) days prior to the anticipated filing date.  Subject to the
provisions of Section 4(c),
the Company will include in the Piggyback Registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion within fifteen (15) days after the issuance of the Company’s
notice.  Such Registrable Securities may be made subject to an
underwriters’ over-allotment option, if so requested by the managing
underwriter.  The holders of Registrable Securities may withdraw all
or any part of the Registrable Securities from a Piggyback Registration at any
time before ten (10) business days prior to the effective date of the Piggyback
Registration.  In any Piggyback Registration, the Company, the holders
of Registrable Securities and any Person who hereafter becomes entitled to
register its securities in a registration initiated by the Company must sell
their securities on the same terms and conditions.  A registration of
Registrable Securities pursuant to this Section 4 shall
not be counted as a Demand Registration pursuant to Section 3.

       

      (b)           Piggyback
Expenses.  The Company shall pay or reimburse to the holders of
the Registrable Securities included in a Piggyback Registration all Registration
Expenses of those holders in connection with the Piggyback Registration
(including the reasonable fees and disbursements of one counsel for such holders
in connection with each such Piggyback Registration not to exceed $25,000 per
Piggyback Registration, as described in Section 6).

       

      
        
          
          

        

        
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      (c)           Underwriting;
Priority on Piggyback Registrations.  The right of any such
holder to be included in an underwritten registration pursuant to this Section 4 shall
be conditioned upon such holder’s participation in such underwriting and the
inclusion of such holder’s Registrable Securities in the underwriting to the
extent provided herein.  All holders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.  If the managing
underwriter gives the Company its written opinion that the total number or
dollar amount of securities requested to be included in the registration exceeds
the number or dollar amount of securities that can be sold, the Company will
include the securities in the registration in the following order of priority:
(i) first, subject to the first proviso below, all securities the Company or the
stockholder, if any, on whose account securities are being registered proposes
to sell; (ii) second, subject to the first proviso below, up to the full number
or dollar amount of Registrable Securities requested to be included in the
registration (allocated pro rata among the holders of Registrable Securities
requested to be included in the registration, on the basis of the dollar amount
or number of Registrable Securities requested to be included, as the case may
be); and (iii) third, any other securities (provided they are of the same class
as the securities sold by the Company) requested to be included, allocated among
the holders of such securities in such proportions as the Company and those
holders may agree; provided, however, that at
least twenty percent (20%) of the Registrable Securities requested to be
included in such registration shall be included in the offering; provided, further,  that,
(i) the holders of Registrable Securities shall not be subject to any cutback in
the amount of Registrable Securities requested to be included in the
registration unless all other holders of securities requesting to be included in
such registration other than the stockholder, if any, on whose account
securities are being registered have been excluded from such
registration.  In the event that the managing underwriter advises the
Company that an underwriters’ over-allotment option is necessary or advisable,
the allocation provided for in this Section 4(c)
shall apply to the determination of which securities are to be included in the
registration of such shares.  Except with the prior written consent of
each holder of Registrable Securities, the Company shall not grant to any holder
of the Company’s securities any right to Piggyback Registration which would
reduce the amount of Registrable Securities includable in such
registration.

       

      (d)           Selection
of Underwriters.  If any Piggyback Registration is an
underwritten offering, the Company will select as the investment banker(s) and
manager(s) that will administer the offering a nationally recognized investment
banker(s) and manager(s) with demonstrable industry-specific expertise and
experience.  The Company and the holders of Registrable Securities
whose shares are being registered shall enter into a customary underwriting
agreement with such investment banker(s) and manager(s), provided, however, that the
liability of any holder of Registrable Securities shall be limited to such
holder’s net proceeds received from the sale of its Registrable Securities in
such offering and such limitation shall not be amended by an underwriting
agreement or arrangement.

       

      (e)           Right to
Terminate Registration.  The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 4 prior
to the effectiveness of such registration whether or not any holder has elected
to include securities in such registration.  The Registration Expenses
of such withdrawn registration shall be borne by the Company in accordance with
Section 7.

       

      
        
          
          

        

        
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      5.           Registration
Procedures.

       

      (a)           Obligations
of the Company.  Whenever required to register any Registrable
Securities, the Company shall as expeditiously as practicable:

       

      (i)           prepare
and file with the Commission to permit a public offering and resale of the
Registrable Securities under the Securities Act which offering may, if so
requested, be on a delayed or continuous basis under Rule 415 a registration
statement on the appropriate form and use commercially best efforts to cause the
registration statement to become effective.  At least ten (10) days
before filing a registration statement or prospectus or at least three (3)
Business Days before filing any amendments or supplements thereto, the Company
will furnish to the counsel of the holders of a Majority of the Registrable
Securities being registered copies of all documents proposed to be filed for
that counsel’s review and approval, which approval shall not be unreasonably
withheld or delayed;

       

      (ii)           immediately
notify each seller of Registrable Securities of any stop order threatened or
issued by the Commission and take all actions reasonably required to prevent the
entry of a stop order or if entered to have it rescinded or otherwise
removed;

       

      (iii)           prepare
and file with the Commission such amendments and supplements to the registration
statement and the corresponding prospectus necessary to keep the registration
statement effective, in the case of the registration required by Section 3 for
the period provided in Section 3 and in
any other case for one hundred twenty (120) days or such shorter period as may
be required to sell all Registrable Securities covered by the registration
statement; and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by the registration statement during
each period in accordance with the sellers’ intended methods of disposition as
set forth in the registration statement;

       

      (iv)           furnish
to each seller of Registrable Securities a sufficient number of copies of the
registration statement, each amendment and supplement thereto (in each case
including all exhibits), the corresponding prospectus (including each
preliminary prospectus), and such other documents as a seller may reasonably
request to facilitate the disposition of the seller’s Registrable
Securities;

       

      (v)           use
its commercially best efforts to register or qualify the Registrable Securities
under securities or blue sky laws of jurisdictions in the United States of
America as any seller requests within twenty (20) days following the original
filing of a registration statement and do any and all other reasonable acts and
things that may be necessary or advisable to enable the seller to consummate the
disposition of the seller’s Registrable Securities in such jurisdiction; provided, however, that the
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified or
to file any general consent to service of process;

       

      
        
          
          

        

        
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      (vi)           notify
each seller of Registrable Securities, at any time when a prospectus is required
to be delivered under the Securities Act, of any event as a result of which the
prospectus or any document incorporated therein by reference contains an untrue
statement of a material fact or omits to state any material fact necessary to
make the statements therein not misleading in light of the circumstances under
which such statements were made, and use best efforts to prepare a supplement or
amendment to the prospectus or any such document incorporated therein so that
thereafter the prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading in light of the circumstances under which such statements were
made;

       

      (vii)          cause
all registered Registrable Securities to be listed on each securities exchange,
if any, on which similar securities issued by the Company are then
listed;

       

      (viii)         provide
an institutional transfer agent and registrar and a CUSIP number for all
Registrable Securities on or before the effective date of the registration
statement;

       

      (ix)           enter
into such customary agreements, including an underwriting agreement in customary
form and take all other actions in connection with those agreements as the
holders of a Majority of the Registrable Securities being registered or the
underwriters, if any, reasonably request to expedite or facilitate the
disposition of the Registrable Securities;

       

      (x)           make
available for inspection by any seller of Registrable Securities, any
underwriter participating in any disposition pursuant to the registration
statement, and any attorney, accountant, or other agent of any seller or
underwriter, all financial and other records, pertinent corporate documents, and
properties of the Company, and cause the Company’s officers, directors and
employees to supply all information reasonably requested by any seller,
underwriter, attorney, accountant, or other agent in connection with the
registration statement; provided that an appropriate confidentiality agreement
is executed by any such seller, underwriter, attorney, accountant or other
agent;

       

      (xi)           in
connection with any underwritten offering, obtain a “comfort” letter from the
Company’s independent public accountants in customary form and covering those
matters customarily covered by “comfort” letters as the
holders of a Majority of the Registrable Securities being registered or the
managing underwriter reasonably requests, addressed to the underwriters and to
the holders of the Registrable Securities being registered;

       

      
        
          
          

        

        
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      (xii)           in
connection with any underwritten offering, furnish an opinion of counsel
representing the Company for the purposes of the registration, in the form and
substance customarily given to underwriters in an underwritten public offering
and reasonably satisfactory to counsel representing the holders of Registrable
Securities being registered and the underwriter(s) of the offering, addressed to
the underwriters and to the holders of the Registrable Securities being
registered;

       

      (xiii)           use
its best efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement complying with the provisions of
Section 11(a) of the Securities Act and covering the period of at least
twelve (12) months, but not more than eighteen (18) months, beginning with the
first month after the effective date of the Registration Statement;

       

      (xiv)          cooperate
with each seller of Registrable Securities and each underwriter participating in
the disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the FINRA; and

       

      (xv)           take
all other steps reasonably necessary to effect the registration of the
Registrable Securities contemplated hereby.

       

      (b)           Seller
Information.  In the event of any registration by the Company,
from time to time, the Company may require each seller of Registrable Securities
subject to the registration to furnish to the Company information regarding such
seller, the Registrable Securities held by them, and the distribution of the
securities subject to the registration, and such seller shall furnish all such
information reasonably requested by the Company.

       

      (c)           Notice to
Discontinue.  Each holder of Registrable Securities agrees by
acquisition of such securities that, upon receipt of any notice from the Company
of any event of the kind described in Section 5(a)(vi),
the holder will discontinue disposition of Registrable Securities until the
holder receives copies of the supplemented or amended prospectus contemplated by
Section 5(a)(vi).  In
addition, if the Company requests, the holder will deliver to the Company (at
the Company’s expense) all copies, other than permanent file copies then in the
holder’s possession, of the prospectus covering the Registrable Securities
current at the time of receipt of the notice.  If the Company gives
any such notice, the time period mentioned in Section 5(a)(iii)
shall be extended by the number of days elapsing between the date of notice and
the date that each seller receives the copies of the supplemented or amended
prospectus contemplated in Section 5(a)(vi).

       

      (d)           Notice by
Holders.  Whenever the holders of Registrable Securities have
requested that any Registrable Securities be registered pursuant to this
Agreement, those holders shall notify the Company, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event concerning that holder of the Registrable Securities, as
a result of which the prospectus included in the registration statement contains
an untrue statement of a material fact or omits to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      6.           Registration
Expenses.  All costs and expenses incurred in connection with
the Company’s performance of or compliance with this Agreement (the “Registration Expenses”) shall
be paid by the Company as provided in this Agreement.  The term “Registration Expenses”
includes without limitation all registration filing fees, reasonable
professional fees and other reasonable expenses of the Company’s compliance with
federal, state and other securities laws (including fees and disbursements of
counsel for the underwriters in connection with state or other securities law
qualifications and registrations), printing expenses, messenger, telephone and
delivery expenses; reasonable fees and disbursements of counsel for the Company
and for one counsel for the holders of Registrable Securities not to exceed
$25,000 per registration; reasonable fees and disbursement of the independent
certified public accountants selected by the Company (including the expenses of
any audit or “comfort”
letters required by or incident to performance of the obligations contemplated
by this Agreement); fees and expenses of the underwriters (excluding discounts
and commissions); fees and expenses of any special experts retained by the
Company at the request of the managing underwriters in connection with the
registration; and applicable stock exchange and NASDAQ registration and filing
fees.  The term “Registration Expenses” does
not include underwriting fees or commissions or transfer taxes, all of which
shall be paid by each of the sellers of Registrable Securities with respect to
the Registrable Securities sold by such seller.

       

      7.           Indemnification.

       

      (a)           Indemnification
by Company.  In the event of any registration of Registrable
Securities under the Securities Act pursuant to this Agreement, to the full
extent permitted by law, the Company agrees to indemnify and hold harmless each
holder of Registrable Securities, its officers, directors, trustees, partners,
employees, advisors and agents, and each Person who controls the holder (within
the meaning of the Securities Act and the Exchange Act) against any and all
losses, claims, damages, liabilities and expenses arising out of (i) any untrue
or allegedly untrue statement of material fact contained in or incorporated by
reference into any registration statement or any amendment thereof under which
such Registrable Securities were registered under the Securities Act, any
prospectus or preliminary prospectus contained therein or any amendment thereof
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except to the extent the untrue statement or omission resulted from information
that the holder furnished in writing to the Company expressly for use therein,
and (ii) any failure to comply with any law, rule or regulation applicable to
such registration.  Such indemnity shall remain in full force and
effect, regardless of any investigation made by such indemnified party, and
shall survive the transfer of such Registrable Securities by such
holder.  In connection with a firm or best efforts underwritten
offering, to the extent customarily required by the managing underwriter, the
Company will indemnify the underwriters, their officers and directors and each
Person who controls the underwriters (within the meaning of the Securities Act
and the Exchange Act), to the extent customary in such agreements.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      (b)           Indemnification
by Holders of Securities.  In connection with any registration
statement, each participating holder of Registrable Securities will furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any registration statement or
prospectus.  Each participating holder agrees, severally and not
jointly, to indemnify and hold harmless, to the extent permitted by law, the
Company, its directors, officers, trustees, partners, employees, advisors and
agents, and each Person who controls the Company (within the meaning of the
Securities Act and the Exchange Act) against any and all losses, claims,
damages, liabilities and expenses arising out of any untrue or allegedly untrue
statement of a material fact or any omission or alleged omission to state a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that the untrue statement or
omission is contained in or omitted from any information or affidavit the holder
furnished in writing to the Company expressly for use therein and only in an
amount not exceeding the net proceeds received by the holder with respect to
securities sold pursuant to such registration statement.  Such
indemnity shall remain in full force and effect, regardless of any investigation
made by the Company, and shall survive the transfer of such Registrable
Securities by such holder.  In connection with a firm or best efforts
underwritten offering, to the extent customarily required by the managing
underwriter, each participating holder of Registrable Securities will indemnify
the underwriters, their officers and directors and each Person who controls the
underwriters (within the meaning of the Securities Act and the Exchange Act), to
the same extent as it has indemnified the Company; provided, however, that the
indemnity obligations of any holder contained in such agreement shall be limited
to the amount of such holder’s net proceeds received from the sale of its
Registrable Securities in such offering.

       

      (c)           Indemnification
Proceedings.  Any Person entitled to indemnification under this
Agreement will (i) give prompt notice to the indemnifying party of any claim
with respect to which it seeks indemnification and (ii) unless in the
indemnified party’s reasonable judgment a conflict of interest may exist between
the indemnified and indemnifying parties with respect to the claim, permit the
indemnifying party to assume the defense of the claim with counsel reasonably
satisfactory to the indemnified party.  If the indemnifying party does
not assume the defense, the indemnifying party will not be liable for any
settlement made without its consent (but that consent may not be unreasonably
withheld).  No indemnifying party will consent to entry of any
judgment or will enter into any settlement that does not include as an
unconditional term thereof the claimant’s or plaintiff’s release of the
indemnified party from all liability concerning the claim or litigation or which
includes any non-monetary settlement.  An indemnifying party who is
not entitled to or elects not to assume the defense of a claim will not be under
an obligation to pay the fees and expenses of more than one counsel for all
parties indemnified by the indemnifying party with respect to the claim, unless
in the reasonable judgment of any indemnified party a conflict of interest may
exist between the indemnified party and any other indemnified party with respect
to the claim, in which event the indemnifying party shall be obligated to pay
the fees and expenses of no more than one additional counsel for the indemnified
parties.

       

      (d)           Contribution.  If
the indemnification provided for in Section 7(a) or
(b) is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
indemnifying party thereunder shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative fault
of the indemnified party and the indemnifying party in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations.  The relative fault of the indemnified party and the
indemnifying party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnified party and the indemnifying party and the parties’
relative intent and knowledge.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 7(d)
were determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in the
immediately preceding paragraph.  Notwithstanding anything herein to
the contrary, no participating holder of Registrable Securities acting as an
indemnifying party shall be required to contribute any amount in excess of the
amount by which the net proceeds of the offering (before deducting expenses, if
any) received by such participating holder exceeds the amount of any damages
that such participating holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission.  No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

       

      The
obligations of the Company and the holders of Registrable Securities under this
Section 7
shall survive the completion of any offering of Registrable Securities in a
registration statement, including the termination of this
Agreement.

       

      8.           Rule
144.  With a view to making available to the holders the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its commercially best efforts to:

       

      (a)           make
and keep public information available, as those terms are understood and defined
in Commission Rule 144 or any similar or analogous rule promulgated under the
Securities Act, at all times after the date hereof;

       

      (b)           file
with the Commission, in a timely manner, all reports and other documents
required of the Company under the Exchange Act; and

       

      (c)           so
long as a holder owns any Registrable Securities, furnish to such holder
forthwith upon request: a written statement by the Company as to its compliance
with the reporting requirements of said Rule 144 of the Securities Act, and of
the Exchange Act; a copy of the most recent annual or quarterly report of the
Company; and such other reports and documents as a holder may reasonably request
in availing itself of any rule or regulation of the Commission allowing it to
sell any such securities without registration.

       

      9.           Participation
in Underwritten Registration.  No Person may participate in any
underwritten registration without (a) agreeing to sell securities on the basis
provided in underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements (the holders of Registrable Securities in a Demand
Registration pursuant to Section 3(d) and
the Company in a piggyback registration pursuant to Section 4(d)), and
(b) completing and executing all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required by the
underwriting arrangements.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      10.           Available
Financial Information.  In the event that the Company ceases to
be a reporting issuer under the Exchange Act, then for so long as the Company is
not a reporting issuer or for so long as the Company shall fail to comply with
its reporting obligations under the Exchange Act, the Company shall, to the
extent that the Investor beneficially owns any of the Shares or Common Stock,
deliver, or cause to be delivered, to the Investor:

       

      (a)           as
soon as practicable after the end of each fiscal year of the Company, and in any
event within ninety (90) days thereafter, a consolidated and consolidating
balance sheets of the Company as of the end of such fiscal year, and
consolidated and consolidating statements of income, changes in stockholders’
equity and cash flows of the Company for such year, prepared in accordance with
GAAP and setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and followed promptly thereafter
(to the extent not then available) by such financial statements accompanied by
the audit report with respect thereto of independent public accountants of
recognized national standing selected by the Company; and

       

      (b)           as
soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of the Company, and in any event within
forty-five (45) days after the end of each such period, consolidated balance
sheets of the Company as of the end of each quarterly period, and consolidated
statements of income, changes in stockholders’ equity and cash flows of the
Company for such period and for the current fiscal year to date, prepared in
accordance with GAAP and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
form normal year-end audit adjustments, all in reasonable detail and certified
by the principal financial or accounting officer of the Company.

       

      11.           Access.  During
the period commencing on the date of the Closing and ending on the Termination
Date, the Company shall afford, provide and furnish, and shall cause its
Subsidiaries and the Representatives of the Company and its Subsidiaries to
afford, provide and furnish to the Investor and their
Representatives:

       

      (i)           during
normal business hours and upon reasonable advance notice, reasonable access to
the Representatives, properties, plants and other facilities and to all books
and records of the Company and each of its Subsidiaries;

       

      (ii)           all
financial, operating and other data and information regarding the Company and
its Subsidiaries as the Investor and its Representatives may reasonably request;
and

       

      (iii)           the
opportunity to discuss the affairs, finances, operations and accounts of the
Company and its Subsidiaries with the Company’s officers on a periodic
basis.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      12.           Miscellaneous.

       

      (a)           Recapitalizations,
Exchanges, etc.  The provisions of this Agreement shall apply
to the full extent set forth herein with respect to (i) the Registrable
Securities, (ii) any and all shares of voting common stock of the Company into
which the Registrable Securities are converted, exchanged or substituted in any
recapitalization or other capital reorganization by the Company and (iii) any
and all equity securities of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in conversion of, in exchange for or in
substitution of, or as a dividend upon, the Registrable Securities and shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date
hereof.  The Company shall use its best efforts to cause any successor
or assign (whether by sale, merger or otherwise) to enter into a new
registration rights agreement with the holders of Registrable Securities on
terms substantially the same as this Agreement as a condition of any such
transaction.

       

      (b)           Amendment.  This
Agreement may be amended or modified only by a written agreement executed by (i)
the Company and (ii) the Investor.

       

      (c)           Attorneys’
Fees.  In any legal action or proceeding brought to enforce any
provision of this Agreement, the prevailing party shall be entitled to recover
all reasonable expenses, charges, court costs and attorneys’ fees in addition to
any other available remedy at law or in equity.

       

      (d)           Benefit
of Parties; Assignment. Subject to the terms and conditions of the
Purchase Agreement and this subsection (d), including, without limitation, the
transfer restrictions contained therein, all of the terms and provisions of this
Agreement shall be binding on and inure to the benefit of the parties and their
respective successors and assigns, including, without limitation, all subsequent
holders of securities entitled to the benefits of this Agreement who agree in
writing to become bound by the terms of this Agreement.

       

      (e)           Captions.  The
captions of the sections and subsections of this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any provision of this Agreement.

       

      (f)           Cooperation.  The
parties agree that after execution of this Agreement they will from time to
time, upon the request of any other party and without further consideration,
execute, acknowledge and deliver in proper form any further instruments and take
such other action as any other party may reasonably require to carry out
effectively the intent of this Agreement.

       

      (g)           Counterparts;
Facsimile Execution.  This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
agreement.  Facsimile execution and delivery of this Agreement shall
be legal, valid and binding execution and delivery for all
purposes.

       

      (h)           Entire
Agreement.  Each party hereby acknowledges that no other party
or any other person or entity has made any promises, warranties, understandings
or representations whatsoever, express or implied, not contained in the
Transaction Documents (as defined in the Purchase Agreement) and acknowledges
that it has not executed this Agreement in reliance upon any such promises,
representations, understandings or warranties not contained herein or therein
and that the Transaction Documents supersede all prior agreements and
understandings between the parties with respect thereto.  There are no
promises, covenants or undertakings other than those expressly set forth or
provided for in the Transaction Documents.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      (i)           Governing
Law.  The internal law of the State of California will govern
the interpretation, construction, and enforcement of this Agreement and all
transactions and agreements contemplated hereby, notwithstanding any state’s
choice of law rules to the contrary.

       

      (j)           Submission
to Jurisdiction; Consent to Service of Process.  The parties
hereto hereby irrevocably submit to the exclusive jurisdiction of any federal or
state court located within Fresno County, California, over any dispute arising
out of or relating to this Agreement or any of the transactions contemplated
hereby and each party hereby irrevocably agrees that all claims in respect of
such dispute or any suit, action or proceeding related thereto shall be heard
and determined in such courts.  The parties hereby irrevocably waive,
to the fullest extent permitted by applicable law, any objection which they may
now or hereafter have to the laying of venue of any such dispute brought in such
court or any defense of inconvenient forum for the maintenance of such
dispute.  Each of the parties hereto agrees that a judgment in any
such dispute may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.

       

      (k)           No
Inconsistent Agreements.  The Company represents and warrants
that, except as disclosed in the Purchase Agreement, it has not granted to any
Person the right to request or require the Company to register any securities
issued by the Company other than the rights contained herein.  The
Company shall not, except with the prior written consent of at least a Majority
of the Registrable Securities, enter into any agreement with respect to its
securities that shall grant to any Person registration rights that in any way
conflict with or are prior to or equal in right to the rights provided under
this Agreement.

       

      (l)           Notices.  All
notices, requests, demands, or other communications that are required or may be
given pursuant to the terms of this Agreement shall be in writing and properly
addressed to the addresses of the parties set forth in the Purchase Agreement or
to such other address(es) as the respective parties hereto shall from time to
time designate to the other(s) in writing.  All notices shall be
effective upon receipt.

       

      (m)           Specific
Performance.  Each of the parties agrees that damages for a
breach of or default under this Agreement would be inadequate and that in
addition to all other remedies available at law or in equity that the parties
and their successors and assigns shall be entitled to specific performance or
injunctive relief, or both, in the event of a breach or a threatened breach of
this Agreement.

       

      (n)           Validity
of Provisions. Should any part of this Agreement for any reason be
declared by any court of competent jurisdiction to be invalid, that decision
shall not affect the validity of the remaining portion, which shall continue in
full force and effect as if this Agreement had been executed with the invalid
portion eliminated; provided, however, that this
Agreement shall be interpreted to carry out to the greatest extent possible the
intent of the parties and to provide to each party substantially the same
benefits as such party would have received under this Agreement if such invalid
part of this Agreement had been enforceable.  Whenever the words “include” or “including” are used in the
Agreement, they shall be deemed to be followed by the words “without
limitation.”

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.

       

      
        	
                 
      

              	
                PACIFIC
      ETHANOL, INC.

              

      

       

       

      
        	
                By:  
      

              	
                /s/ NEIL M.
      KOEHLER

              	 

      

      
        	
                 
      

              	
                Neil
      M. Koehler, President and CEO

              

      

       

      

       

      
        	
                 
      

              	
                LYLES
      UNITED, LLC

              

      

       

       

      
        	
                By:  
      

              	
                /s/ WILLIAM M. LYLES
      IV

              	 

      

      
        	
                 
      

              	
                William
      M. Lyles IV, Vice President

              

      

      
 

       

      17paceth_8k-ex1005.htm

    Exhibit 10.5

     

    

 

    Pacific
Ethanol, Inc.

    400
Capitol Mall, Suite 2060

    Sacramento,
CA  95814

    

    March 27,
2008

    

    

    Lyles
United, LLC

    1210 West
Olive Avenue

    Fresno,
CA  93728

     

    
      	
               
      

            	
              Re:

            	
              Dividend
      Rights

            

    

     

    Ladies
and Gentlemen:

     

    This side
letter agreement (the “Letter
Agreement”) is provided with reference to that certain Securities
Purchase Agreement (the “Securities Purchase
Agreement”) dated March 18,
2008, by and between Pacific Ethanol, Inc., a Delaware corporation (the
“Company”), and Lyles United, LLC, a Delaware
limited liability company (the “Purchaser”), with reference to the Company’s
Certificate of Designations, Powers, Preferences, and Rights of the Series B
Cumulative Convertible Preferred Stock (the “Series B Certificate
of Designations”) with
respect to its Series B Cumulative Convertible Preferred Stock, $.001 par value
per share (the “Series B Preferred
Stock”), and with reference
to the Company’s Certificate of Designations, Powers, Preferences, and Rights of
the Series A Cumulative Redeemable Convertible Preferred Stock (the “Series A Certificate
of Designations”) with
respect to its Series A Cumulative Redeemable Convertible Preferred Stock, $.001
par value per share (the “Series A Preferred
Stock”).  Capitalized terms not
defined herein shall have the respective meanings given to such terms in
the Securities Purchase
Agreement.

     

    In
connection with the closing of the transactions contemplated by the Securities
Purchase Agreement and in furtherance thereof, the Company desires to waive
certain rights held by the Company and set forth in the Series B Certificate of
Designations in favor of the Purchaser, in its capacity as the sole holder of
all of the Company’s outstanding shares of Series B Preferred
Stock.

     

    In
consideration of the mutual covenants herein contained, and for other valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:

     

    1. Waiver of
Series B PIK Right.  The Company hereby expressly waives its
right under Section 3(a) of the Series B Certificate of Designations to pay any
dividends due and payable to the Purchaser as a holder of Series B Preferred Stock in
shares of Series B Preferred Stock (the “Series B PIK
Right”).  The
Company hereby covenants that it shall not, without the prior written consent of
the Purchaser, exercise or attempt to exercise the Series B PIK Right provided
for in Section 3(a) of the Series B Certificate of Designations at any time
following the date of this Letter Agreement.  In connection with
waiving its Series B PIK Right, the Company hereby acknowledges to the Purchaser
that the Company has, concurrently with the execution of this Letter Agreement,
entered into that certain Series A Preferred Stockholder Consent and Waiver
dated the date hereof with Cascade Investment, L.L.C., a Washington limited
liability company (“Cascade”), whereby the Company has agreed, among
other things, to waive its right under Section 3(a) of the Series A
Certificate of Designations to pay any dividends due and payable to Cascade as a
holder of Series A Preferred Stock
in shares of Series A Preferred Stock.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
Lyles
United, LLC

    
      March 27,
2008

      Page
2

     

    2. Full
Force and Effect.  Except as otherwise provided herein, the
Series B Certificate of Designations shall remain unchanged and in full force
and effect.  Except as expressly set forth above, nothing in this
Letter Agreement shall be construed as a waiver of any rights of any of the
parties to this Letter Agreement under the Series B Certificate of
Designations.

     

    In
witness whereof, the parties have executed this Letter Agreement as of March 27,
2008.

     

    

    
      	 
      	
              PACIFIC ETHANOL,
      INC.

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:      /s/
      NEIL M.
      KOEHLER                                   
      

            
	 
      	
                 Neil M. Koehler,
      President and CEO

            
	 
      	 
      
	 
      	
              LYLES UNITED,
      LLC

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:     
      /s/
      WILLIAM M. LYLES
      IV                              
      

            
	 
      	
                 William M. Lyles
      IV, Vice President

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