Document:

Unassociated Document

    
      EXHIBIT
10.1

       

      EXECUTION
COPY

    

     

     

     

     

     

    SECURITIES
PURCHASE AGREEMENT

     

    Between

     

    PACIFIC
ETHANOL, INC.

     

    and

     

    LYLES
UNITED, LLC

     

    Dated
March 18, 2008

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    TABLE OF CONTENTS

     

    
      	 	 	 	
              Page

            
	 	 	 	 
	
              ARTICLE
      I

            	 	PURCHASE AND
      SALE	      
              1

            
	 	      
              1.1

            	 	Issuance, Sale and
      Delivery of the Preferred Shares and Warrant at the Closing	
              1

            
	 	      
              1.2

            	 	      
              Closing.

            	      
              1

            
	 	 	 	 	 
	
              ARTICLE
      II

            	 	REPRESENTATIONS AND
      WARRANTIES OF THE COMPANY	      
              2

            
	 	      
              2.1

            	 	Organization and
      Qualifications	      
              2

            
	 	      
              2.2

            	 	Certificate of
      Incorporation and Bylaws	      
              2

            
	 	      
              2.3

            	 	Corporate Power and
      Authority	      
              2

            
	 	      
              2.4

            	 	Authorization;
      Validity	      
              2

            
	 	      
              2.5

            	 	No Conflicts; No
      Violation	      
              3

            
	 	      
              2.6

            	 	Authorized Capital
      Stock	      
              3

            
	 	      
              2.7

            	 	Financial
      Statements	      
              4

            
	 	      
              2.8

            	 	No Undisclosed
      Liabilities	      
              5

            
	 	      
              2.9

            	 	Changes	      
              5

            
	 	      
              2.10

            	 	Litigation;
      Compliance with Law	      
              7

            
	 	      
              2.11

            	 	Proprietary
      Information of Third Parties	      
              8

            
	 	      
              2.12

            	 	Intellectual
      Property	      
              8

            
	 	      
              2.13

            	 	Assets	      
              8

            
	 	      
              2.14

            	 	Employee Benefit
      Plans	      
              8

            
	 	      
              2.15

            	 	Title to Properties;
      Encumbrances	      
              9

            
	 	      
              2.16

            	 	Insurance	      
              9

            
	 	      
              2.17

            	 	Taxes	      
              9

            
	 	      
              2.18

            	 	Loans and
      Advances	      
              10

            
	 	      
              2.19

            	 	Assumptions,
      Guaranties, Etc. of Indebtedness of Other Persons	      
              10

            
	 	      
              2.20

            	 	Approvals	      
              10

            
	 	      
              2.21

            	 	      
              Offering
      of the Preferred Shares

            	      
              10

            
	 	      
              2.22

            	 	Offering
      Exemption	      
              10

            
	 	      
              2.23

            	 	Brokers; Financial
      Advisors	      
              11

            
	 	      
              2.24

            	 	Transactions With
      Affiliates	      
              11

            
	 	      
              2.25

            	 	Employees	      
              11

            
	 	      
              2.26

            	 	Environmental and
      Safety Laws	      
              12

            
	 	      
              2.27

            	 	Foreign Corrupt
      Practices Act; USA Patriot Act	      
              13

            
	 	      
              2.28

            	 	Illegal or
      Unauthorized Payments; Political Contributions	      
              13

            
	 	      
              2.29

            	 	Pending
      Changes	      
              13

            
	 	      
              2.30

            	 	Investment Company
      Act	      
              14

            
	 	      
              2.31

            	 	Registration
      Rights	      
              14

            
	 	      
              2.32

            	 	Books and
      Records	      
              14

            
	 	      
              2.33

            	 	Disclosure	      
              14

            
	 	      
              2.34

            	 	Permits	      
              14

            
	 	      
              2.35

            	 	SEC and NASDAQ
      Matters.	      
              15

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	 	 	 	      
              Page

            
	 	 	 	 
	
              ARTICLE
      III

            	 	REPRESENTATIONS,
      WARRANTIES AND COVENANTS OF THE PURCHASER	      
              15

            
	 	      
              3.1

            	 	Representations and
      Warranties of the Purchaser	      
              15

            
	 	      
              3.2

            	 	Restricted
      Securities	      
              16

            
	 	      
              3.3

            	 	Legend	      
              16

            
	 	 	 	 	 
	
              ARTICLE
      IV

            	 	CONDITIONS TO THE
      OBLIGATIONS OF THE PURCHASER AND THE COMPANY	      
              17

            
	 	      
              4.1

            	 	Conditions to the
      Purchaser’s Obligations at the Closing	      
              17

            
	 	      
              4.2

            	 	Conditions to the
      Company’s Obligations at the Closing	      
              19

            
	 	 	 	 	 
	
              ARTICLE
      V

            	 	COVENANTS OF THE
      COMPANY	      
              20

            
	 	      
              5.1

            	 	Reserve for
      Conversion Shares and Warrant Shares	      
              20

            
	 	      
              5.2

            	 	Corporate
      Existence	      
              20

            
	 	      
              5.3

            	 	Preservation of
      Property and Assets	      
              20

            
	 	      
              5.4

            	 	Properties,
      Business, Insurance	      
              21

            
	 	      
              5.5

            	 	Inspection,
      Consultation and Advice	      
              21

            
	 	      
              5.6

            	 	Restrictive
      Agreements Prohibited	      
              21

            
	 	      
              5.7

            	 	Transactions with
      Affiliates	      
              21

            
	 	      
              5.8

            	 	Payment of Taxes and
      Indebtedness	      
              21

            
	 	      
              5.9

            	 	Internal Accounting
      Controls	      
              21

            
	 	      
              5.10

            	 	Change of
      Operations	      
              22

            
	 	      
              5.11

            	 	Indemnity	      
              22

            
	 	      
              5.12

            	 	Compliance with
      Laws	      
              22

            
	 	      
              5.13

            	 	Use of
      Proceeds	      
              22

            
	 	      
              5.14

            	 	HSR Act
      Filings	      
              22

            
	 	      
              5.15

            	 	Stockholder
      Approval	      
              23

            
	 	      
              5.16

            	 	New Capital
      Expenditures	      
              23

            
	 	      
              5.17

            	 	Undertakings of the
      Company With Respect to Series A Preferred Stock Transferees	      
              23

            
	 	 	 	 	 
	
              ARTICLE
      VI

            	 	MISCELLANEOUS	      
              23

            
	 	      
              6.1

            	 	Expenses	      
              23

            
	 	      
              6.2

            	 	Survival of
      Agreements	      
              23

            
	 	      
              6.3

            	 	Brokerage	      
              23

            
	 	      
              6.4

            	 	Parties in
      Interest	      
              24

            
	 	      
              6.5

            	 	Specific
      Performance	      
                    
                24

              

            
	 	      
              6.6

            	 	Further
      Assurances	      
                    
                24

              

            
	 	      
              6.7

            	 	Submission to
      Jurisdiction; Consent to Service of Process	      
                    
                24

              

            
	 	      
              6.8

            	 	Notices	      
                    
                24

              

            
	 	      
              6.9

            	 	Governing
    Law	      
              25

            
	 	      
              6.10

            	 	Entire
      Agreement	      
              25

            
	 	      
              6.11

            	 	Counterparts	      
              25

            
	 	      
              6.12

            	 	Amendments and
      Waivers	      
              25

            
	 	      
              6.13

            	 	Severability	      
              25

            
	 	      
              6.14

            	 	Titles and
      Subtitles; Interpretive Matters	      
              25

            
	 	      
              6.15

            	 	Facsimile
      Signatures	      
              25

            
	 	      
              6.16

            	 	Other
    Remedies	      
              25

            
	 	      
              6.17

            	 	Certain Defined
      Terms	      
              26

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    INDEX TO SCHEDULES

     

    
      	SCHEDULE
    2.1	 	Organization	 
	SCHEDULE
    2.6	 	Authorized Capital
      Stock	 
	SCHEDULE
    2.7	 	Financial
      Statements	 
	SCHEDULE
    2.9	 	Changes	 
	SCHEDULE
    2.10	 	Litigation	 
	SCHEDULE
    2.13	 	Assets	 
	SCHEDULE
    2.15	 	Title to Properties;
      Encumbrances	 
	SCHEDULE
    2.19	 	Assumptions	 
	SCHEDULE
    2.26	 	Environmental
      Reports	 
	SCHEDULE
    2.31	 	Registration
      Rights	 
	SCHEDULE
    2.33	 	Disclosure	 
	SCHEDULE
    2.35	 	SEC and NASDAQ
      Matters	 
	 	 	 	 
	 	 	 	 
	INDEX TO
      EXHIBITS	 	 	 
	 	 	 	 
	EXHIBIT A	 	Form of
      Warrant	 
	EXHIBIT B	 	Certificate of
      Incorporation (including the Series A Certificate
ofDesignations)	 
	EXHIBIT C	 	Form of Series B
      Certificate of Designations	 
	EXHIBIT D	 	Form of Registration
      Rights Agreement	 
	EXHIBIT E	 	Form of Series A
      Preferred Stockholder Consent and Waiver	 
	EXHIBIT F	 	Form of Opinion of
      Company’s Counsel	 

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      SECURITIES
PURCHASE AGREEMENT

       

      THIS
SECURITIES PURCHASE AGREEMENT is made on the 18th day of
March, 2008 (the “Agreement”), by and between
Pacific Ethanol, Inc., a Delaware corporation (the “Company”), and Lyles United,
LLC, a Delaware limited liability company (the “Purchaser”).  Certain
capitalized terms used herein are defined in Section 6.17 of
this Agreement.

       

      WHEREAS,
the Purchaser desires to purchase, and the Company desires to issue and sell,
upon the terms and conditions stated in this Agreement, (i) 2,051,282 shares
(the “Preferred Shares”)
of the Company’s Series B Cumulative Convertible Preferred Stock, par value
$.001 per share (the “Series B
Preferred Stock”), and (ii) a warrant (the “Warrant”) in the form
attached to this Agreement as Exhibit A 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”).

       

      NOW,
THEREFORE, in consideration of the premises, representations, warranties and the
mutual covenants contained in this Agreement, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

       

      ARTICLE
I

      PURCHASE AND
SALE

       

      1.1    Issuance,
Sale and Delivery of the Preferred Shares and Warrant at the
Closing.  At the Closing (as defined in Section 1.2), on
the terms and subject to the conditions of this Agreement, the Company shall
issue and sell to the Purchaser, and the Purchaser shall purchase from the
Company, 2,051,282 Preferred Shares and
(ii) a Warrant to purchase 3,076,923 Warrant Shares, for the
aggregate purchase price of $40,000,000.

       

      1.2    Closing.

       

      (a)    The
Closing shall take place at 10:00 a.m. at the offices of Rutan & Tucker,
LLP, 611 Anton Blvd., Costa Mesa, California, on the Closing Date.  At
the Closing, the Company shall issue and deliver to the Purchaser a stock
certificate or certificates in definitive form, registered in the name of the
Purchaser, representing 2,051,282 Preferred Shares and
(ii) a Warrant in definitive form, registered in the name of the Purchaser
representing the right to purchase 3,076,923 Warrant
Shares.  As payment in full for the Preferred Shares and the Warrant
being purchased by it under this Agreement, and against delivery of the stock
certificate or certificates therefor and Warrant as aforesaid, on the Closing
Date, the Purchaser shall pay to the Company by wire transfer or by such other
method as may be reasonably acceptable to the Company, in immediately available
funds in the amount of $40,000,000.  Such amount shall be paid to the
account as shall have been designated in writing to the Purchaser at least two
(2) business days prior to the Closing Date by the Company.

       

      (b)    The
Company shall reimburse the Purchaser for the costs and expenses described in
Section 6.1 by
wire transfer or by such other method as may be reasonably acceptable to the
Purchaser, in immediately available funds.  Such amounts shall be paid
to the account of the Purchaser as shall have been designated in writing to the
Company at least two (2) business days prior to the Closing Date by the
Purchaser.

       

      
        
          
          

        

        
          -1-

          
            

          

        

        
          
          

        

      

       

      ARTICLE
II

      REPRESENTATIONS AND
WARRANTIES OF THE COMPANY

       

      The
Company represents and warrants to the Purchaser that:

       

      2.1    Organization
and Qualifications.  The Company and each of its Subsidiaries
is duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or organization as set forth in Schedule 2.1 and
has the requisite power and authority to own, lease and operate its assets,
properties and business and to carry on its business as it is now being
conducted or proposed to be conducted.  The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to transact business,
and is in good standing, in each jurisdiction where it owns or leases real
property or maintains employees or where the nature of its activities make such
qualification necessary.

       

      2.2    Certificate
of Incorporation and Bylaws.  The Company has delivered to the
Purchaser true, correct, and complete copies of the Company’s Certificate of
Incorporation, including all certificates of amendment and certificates of
designations including the Certificate of Designations, Powers, Preferences and
Rights of the Series A Cumulative Redeemable Convertible Preferred Stock (the
“Series A Certificate of
Designations”), copies of which are attached hereto as Exhibit B, and
the Certificate of Designations, Powers, Preferences and Rights of the Series B
Cumulative Convertible Preferred Stock in the form included in Exhibit C
attached hereto (the “Series B
Certificate of Designations” and, together with the certificate of
incorporation and all certificates of amendment thereof and the Series A
Certificate of Designations, the “Amended Charter”) and the
Company’s Bylaws (the “Bylaws”), in each case, as in
effect on the date hereof.

       

      2.3    Corporate
Power and Authority.  The Company has all requisite power and
authority to execute and deliver each of the Transaction Documents to which it
is a party.  The Company has all requisite legal and corporate power
and authority to issue, sell and deliver the Preferred Shares and the Warrant to
the Purchaser hereunder, to issue and deliver shares of Series B Preferred Stock
as dividends in accordance with Section 3(a) of the Series B
Certificate of Designations (the “Dividend Shares”), to issue
and deliver the shares of Common Stock issuable upon conversion of the Series B
Preferred Stock (the “Conversion Shares”) and to
issue and deliver the Warrant Shares upon exercise of the
Warrant.  The Conversion Shares and Warrant Shares have been duly
reserved for issuance and when issued will be duly and validly issued, fully
paid and nonassessable.

       

      2.4    Authorization;
Validity.  The Company’s: (a) execution and delivery of the
Transaction Documents and performance of its obligations thereunder, (b)
execution and filing of the Series B Certificate of Designations, (c) issuance,
sale and delivery of the Preferred Shares and, when declared as a dividend, the
Dividend Shares, (d) issuance and delivery of the Conversion Shares, (e)
issuance and delivery of the Warrant, and (f) issuance and delivery of the
Warrant Shares have been duly authorized by all requisite corporate action or
will have been so authorized prior to the Closing Date and, other than
stockholder approval and approvals of or required by The NASDAQ Stock Market, if
any, no other corporate action on the part of the Company or any Subsidiary or
other approval or authorization is required on the part of the Company, any
Subsidiary or any person by Law or otherwise in order to make the Transaction
Documents the valid, binding and enforceable obligations of the
Company.  Each of the Transaction Documents, when executed and
delivered by the Company, will constitute a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its
respective terms.

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

      2.5    No
Conflicts; No Violation.  The Company is not in violation of or
default under any provision of its Amended Charter or Bylaws.  No
Subsidiary is in violation of or default under any provision of its articles or
certificate of incorporation or bylaws or, if such Subsidiary is not a
corporation, similar organizational and formation documents.  The
execution, delivery, and performance of, and compliance with, the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, including the issuance, sale and delivery of the Preferred Shares and
any Dividend Shares and issuance and delivery of the Conversion Shares, issuance
and delivery of the Warrant and issuance and delivery of the Warrant Shares have
not and will not (a) violate any Law or any order, injunction, ruling, writ,
award, judgment or decree of any court or other agency of government or
authority which is applicable to the Company or any Subsidiary or any of their
assets, properties or businesses, or any provision of any indenture, agreement,
contract, license, arrangement, understanding, evidence of indebtedness, note,
lease or other instrument to which the Company or any Subsidiary or any of their
assets, properties or businesses is bound, (b) conflict with, result in a breach
of, or constitute (or, with due notice or lapse of time or both, would
constitute) a default under, or give rise to any right of termination,
acceleration or cancellation under, any such indenture, agreement, contract,
license, arrangement, understanding, evidence of indebtedness, note, lease or
other instrument, or (c) result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon the
Company or any Subsidiary or any of their assets, properties or businesses. No
provision of any Transaction Document violates, conflicts with, results in a
breach of or constitutes (or, with due notice or lapse of time or both, would
constitute) a default by any other party under any other indenture, agreement,
contract, license, arrangement, understanding, evidence of indebtedness, note,
lease or other instrument.

       

      2.6    Authorized
Capital Stock.

       

      (a)    The
Company’s authorized capital stock consists of 10,000,000 shares of Preferred
Stock, par value $.001 per share (the “Preferred Stock”), and
100,000,000 shares of Common Stock.  Immediately prior to the Closing,
40,674,464 shares of Common Stock are outstanding, 5,315,625 shares of Series A
Cumulative Redeemable convertible Preferred Stock (the “Series A Preferred Stock”)
are outstanding and no shares of Series B Preferred Stock are
outstanding.  In addition, there are 225,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options for Common Stock,
1,047,511 additional shares of Common Stock reserved for issuance upon exercise
of options available for grant under the Company’s stock option plans, 100,000
shares of Common Stock reserved for issuance upon exercise of outstanding
warrants for Common Stock, 10,631,250 shares of Common Stock reserved for
issuance upon conversion of the Series A Preferred Stock, 6,153,846 shares of
Common Stock reserved for issuance upon conversion of the Series B Preferred
Stock, and no shares are held in the Company’s treasury.  The
stockholders of record and holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number of shares of
Common Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each are as set forth in
the attached Schedule 2.6.  The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of the Company’s authorized
capital stock are as set forth in the Certificate of Incorporation, the Series A
Certificate of Designations and the Series B Certificate of Designations, and
all such designations, powers, preferences, rights, qualifications, limitations
and restrictions are valid, binding and enforceable and in accordance with all
applicable laws.  Except as set forth in the attached Schedule 2.6:
(i) no Person owns of record any share of, or is known to the Company to own
beneficially more than 5% of, the Common Stock, (ii) no subscription, warrant,
option, convertible security, or other right (contingent or other) to purchase
or otherwise acquire equity securities of the Company is authorized or
outstanding and (iii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other such rights
or to distribute to holders of any of its equity securities any evidence of
indebtedness or asset.  Except as set forth in the attached Schedule 2.6,
the Company has no obligation (contingent or other) to purchase, repurchase,
redeem, retire or otherwise acquire any of its equity securities or any interest
therein or to pay any dividend or make any other distribution in respect
thereof.  Except as set forth in the attached Schedule 2.6, no
stock plan, stock purchase, stock option or other agreement or understanding
between the Company and any holder of any equity securities of the Company or
rights to purchase equity securities of the Company provides for acceleration or
other changes in the vesting provisions or other terms of such securities, as
the result of any merger, sale of stock or assets, change in control or other
similar transaction by the Company.  Except as set forth in the
attached 

       

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

         

      

      Schedule 2.6,
there are no voting trusts or agreements, stockholders’ agreements, pledge
agreements, buy-sell agreements, rights of first refusal, preemptive rights or
other similar rights or proxies relating to any of the Company’s securities
(whether or not the Company is a party thereto), or agreements relating to the
issuance, sale, redemption, transfer or other disposition of the Company’s
securities.  All of the outstanding shares of Common Stock of the
Company are duly authorized and validly issued, are fully paid and nonassessable
and have been issued in compliance with all applicable federal and state
securities laws.

       

      (b)    The
Preferred Shares shall have been duly authorized and the Preferred Shares, when
issued in accordance with this Agreement, and the Dividend Shares, when issued
in payment of any dividend, will be duly and validly issued, fully paid and
nonassessable shares of Series A Preferred Stock and will be free and clear of
all liens, charges, restrictions, claims and encumbrances, other than liens,
charges, restrictions, claims and encumbrances that were created by the
Purchaser and restrictions on transfer imposed by this Agreement, the Securities
Act of 1933, as amended (the “Securities Act”) and
applicable state securities laws.  The Conversion Shares shall have
been duly reserved for issuance upon conversion of the Preferred Shares, if any
Dividend Shares shall be issued, the Dividend Shares, and the Warrant Shares
shall have been duly reserved for issuance upon exercise of the Warrant and, in
each case, when so issued, will be duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock and will be free and clear of all
liens, charges, restrictions, claims and encumbrances, other than liens,
charges, restrictions, claims and encumbrances that were created by the
Purchaser and restrictions on transfer imposed by this Agreement the Securities
Act and applicable state securities laws.  Except as set forth in
Schedule 2.6,
neither the issuance, sale or delivery of the Preferred Shares or of any
Dividend Shares nor the issuance or delivery of the Conversion Shares or the
Warrant Shares will be subject to any preemptive right of the Company’s
stockholders or to any right of first refusal or other right in favor of any
Person.  Except as set forth in Schedule 2.6,
the consummation of the transactions contemplated hereunder will not result in
any anti-dilution adjustment or other similar adjustment to the outstanding
shares of any of the Company’s outstanding convertible, exercisable or
exchangeable securities.  Any Person with any right (other than the
Purchaser) to purchase securities of the Company, which would be triggered as a
result of the transactions contemplated under this Agreement, has waived such
rights.

       

      2.7    Financial
Statements. The Company has delivered or made available to the Purchaser
the audited financial statements of the Company and its Subsidiaries as at and
for the years ended December 31, 2006, unaudited financial statements for
the fiscal quarters ended March 31, 2007, June 30, 2007 and
September 30, 2007 and unaudited draft financial statements as at and for
the year ended December 31, 2007 (collectively, the “Financial
Statements”).  Each of the Financial Statements was prepared in
good faith, is complete and correct, and has been prepared in accordance with
United States generally accepted accounting principles (“GAAP”) consistently applied
throughout the periods covered thereby and, except as set forth in Schedule 2.7, fairly
and accurately present the financial condition and operating results of the
Company and its Subsidiaries as of the dates, and for the periods, indicated
therein, and are consistent with the books and records of the Company and each
of its Subsidiaries (which books and records are correct and complete) except
that the unaudited financial statements as at and for the fiscal quarters ended
March 31, 2007, June 30, 2007 and September 30, 2007 are subject
to normal year-end adjustments and the unaudited draft financial statements as
at and for the year ended December 31, 2007 are subject to adjustments and
could be materially different from the audited financial statements for the year
ended December 31, 2007.

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

         

      

      2.8    No
Undisclosed Liabilities.  None of the Company or its
Subsidiaries has any liabilities (whether accrued, absolute, contingent or
otherwise, and whether due or to become due or asserted or unasserted), except
(a) liabilities provided for in the Financial Statements (other than liabilities
which, in accordance with GAAP, need not be disclosed), and (b) liabilities
(including accounts payable) incurred since the date of the Financial Statements
in the ordinary course of business consistent with past practice.  The
Company knows of no basis for the assertion against the Company or any of its
Subsidiaries of any liabilities not adequately reflected or reserved against in
the Financial Statements.  Except as disclosed in the Financial
Statements or in Schedule 2.19, none
of the Company or its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.

       

      2.9    Changes.  Except
as expressly contemplated by the Transaction Documents or as set forth on Schedule 2.9,
since December 31, 2007:

       

      (a)    there has
been no Material Adverse Change nor has any event occurred which could
reasonably be expected to result in a Material Adverse Change;

       

      (b)    there has
not been any payment of, or declaration, setting a record date, setting aside or
authorizing the payment of, any dividend or other distribution in respect of any
shares of capital stock of the Company or any purchase, repurchase, retirement,
redemption or other acquisition by the Company, of any of the outstanding shares
of capital stock or other securities of, or other ownership interest in, the
Company;

       

      (c)    there has
not been any transfer, issue, sale or other disposition by the Company of any
shares of capital stock or other securities of the Company or any grant of
options, warrants, calls or other rights to purchase or otherwise acquire shares
of such capital stock or such other securities;

       

      (d)    none of
the Company or its Subsidiaries has materially increased the compensation
payable or to become payable, or awarded or paid any bonuses to employees,
officers, directors, consultants, advisors, agents, stockholders or
representatives of the Company or any Subsidiary nor has the Company or any
Subsidiary either entered into any employment, deferred compensation, severance
or similar agreements (nor amended any such agreement) or agreed to materially
increase the compensation payable or to become payable by it to any of its
employees, officers, directors, consultants, advisors, agents, stockholders or
representatives or agreed to materially increase the coverage or benefits
available under any severance pay, deferred compensation, bonus or other
incentive compensation, pension or other employee benefit plan, payment or
arrangement made to, for or with such employees, officers, directors,
consultants, advisors, agents, stockholders or representatives;

       

      (e)    none of
the Company or its Subsidiaries has made any loans, advances, guarantees or
capital contributions to, or investments in, any Person or paid any fees or
expenses to or entered into any arrangement, transaction or agreement with any
Affiliate of the Company or any members of their immediate families other than
ordinary advances for expenses incurred in the ordinary course of
business;

       

      (f)    there has
not been satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company or any Subsidiary, except in the ordinary
course of business and that has not resulted in a Material Adverse
Change;

       

      
        
          
          

        

        
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      (g)    there has
not been any termination or material change to a material contract or
arrangement by which the Company or any Subsidiary or any of their assets are
bound or subject;

       

      (h)    there has
not been any resignation or termination of employment of any key employee,
officer, director, consultant, advisor, agent or representative of the Company
or any of its Subsidiaries;

       

      (i)     none of
the Company or its Subsidiaries has transferred any tangible or intangible
assets or granted any rights under any contracts, leases, licenses, agreements
or Intellectual Property (as defined in Section 2.12)
used by the Company or any Subsidiary in its business which could reasonably be
expected to result in a Material Adverse Change;

       

      (j)    there has
not been any damage, destruction or loss, whether or not covered by insurance,
with respect to the property or assets of the Company or any Subsidiary having a
replacement cost of more than $10,000 for any single loss or $25,000 for all
such losses in the aggregate;

       

      (k)    none of
the Company or its Subsidiaries has mortgaged, pledged or subjected to any Lien
or encumbrance any of its assets (except for Liens that do not, individually or
in the aggregate, have or result in a Material Adverse Change), acquired any
assets, or sold, assigned, transferred, conveyed, leased or otherwise disposed
of any assets, except for assets acquired or sold, assigned, transferred,
conveyed, leased or otherwise disposed of in the ordinary course of business
consistent with the its past practice or liens for taxes not yet due or
payable;

       

      (l)    none of
the Company or its Subsidiaries has canceled or compromised any debt or claim,
or amended, canceled, terminated, relinquished, waived or released any contract
or right or settled any claim;

       

      (m)    none of
the Company or its Subsidiaries has made, or entered into any binding commitment
to make, any capital expenditures or capital additions or betterments in excess
of $100,000 in the aggregate;

       

      (n)    none of
the Company or its Subsidiaries has incurred any debts, obligations or
liabilities, whether due or to become due, except current liabilities incurred
in the usual and ordinary course of business, none of which current liabilities
(individually or in the aggregate) has resulted in, or could reasonably be
expected to result in, a Material Adverse Change;

       

      (o)    none of
the Company or its Subsidiaries has entered into any material transaction except
for the Transaction Documents;

       

      (p)    none of
the Company or its Subsidiaries has made any change in its accounting
principles, methods or practices or depreciation or amortization policies or
rates theretofore adopted;

       

      
        
          
          

        

        
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      (q)    none of
the Company or its Subsidiaries has disclosed to any Person any trade secrets
except for disclosures made to Persons subject to valid and enforceable
confidentiality agreements;

       

      (r)    none of
the Company or its Subsidiaries has suffered or experienced any change in the
relationship or course of dealings between the Company or such Subsidiary and
any of its suppliers or customers which supply goods or services to the Company
or such Subsidiary or purchase goods or services from the Company or such
Subsidiary, which has resulted in, or could reasonably be expected to result in,
a Material Adverse Change;

       

      (s)    none of
the Company or any of its Subsidiaries has made any payment to, or received any
payment from, or made or received any investment in, or entered into any
transaction or series of related transactions (including without limitation, the
purchase, sale, exchange or lease of assets, property or services, or the making
of a loan or guarantee) with any Affiliate; and

       

      (t)    none of
the Company or its Subsidiaries has entered into any agreement or commitment
(contingent or otherwise) to do any of the foregoing.

       

      2.10        
Litigation;
Compliance with Law.

       

      (a)    Except as
set forth in Schedule 2.10,
there is no (i) action, suit, claim, proceeding or investigation pending or, to
the Company’s knowledge, threatened, against or affecting the Company or any
Subsidiary or any of their properties or assets, at law or in equity, or before
or by any federal, state, municipal or other governmental body, department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding pending or, to the Company’s knowledge, threatened,
against or affecting the Company or any Subsidiary or any of their properties or
assets or (iii) governmental inquiry pending or, to the Company’s knowledge,
threatened, against or affecting the Company or any Subsidiary or any of their
properties or assets (including without limitation any inquiry as to the
Company’s or any of its Subsidiary’s qualification to hold or receive any
license or permit), that could, individually or in the aggregate, result in a
Material Adverse Change, and to the best of the Company’s knowledge, there is no
basis for any of the foregoing.  None of the Company or its
Subsidiaries is in default with respect to any order, writ, judgment, injunction
or decree known to or served upon the Company or such Subsidiary of any court or
of any federal, state, municipal or other governmental body, department,
commission, board, bureau, agency or instrumentality, domestic or
foreign.

       

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

       

      (c)    There is
no existing Law, and the Company is not aware of any proposed Law, which would
prohibit or restrict the Company or any Subsidiary from, or otherwise materially
adversely affect the Company or any such Subsidiary in, conducting its business
in any jurisdiction in which it is now conducting business or in which it
proposes to conduct business.  None of the Company or its Subsidiaries
has received any notices of violation or alleged violation of any Law, by any
federal, state, municipal or other governmental body, department, commission,
board, bureau, agency or instrumentality, domestic or foreign.

       

      
        
          
          

        

        
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      2.11       Proprietary
Information of Third Parties.  No third party has claimed or,
to the best of the Company’s knowledge, has reason to claim, that any Person
employed by or affiliated with the Company or its Subsidiaries has (a) violated
or may be violating any of the terms or conditions of his employment,
non-competition, non-disclosure or similar agreement with such third party, (b)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party or (c)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees.  No third
party has requested information from the Company or any of its Subsidiaries
which suggests that such a claim might be contemplated.  To the best
of the Company’s knowledge, no Person employed by or Affiliate of the Company or
any of its Subsidiaries has employed or proposes to employ any trade secret or
any information or documentation proprietary to any former employer, and to the
best of the Company’s knowledge, no Person employed by or Affiliate of the
Company or any of its Subsidiaries has violated any confidential relationship
which such Person may have had with any third party in connection with the
development, manufacture or sale of any product or proposed product or the
development or sale of any service or proposed service of the Company or any of
its Subsidiaries, and the Company has no reason to believe there will be any
such employment or violation. To the best of the Company’s knowledge, neither
the execution or delivery of the Transaction Documents, nor the carrying on of
the businesses of the Company and its Subsidiaries as officers, employees or
agents by any officer, director or key employee of the Company or any of its
Subsidiaries, nor the conduct or proposed conduct of the Company’s or any such
Subsidiary’s business, will conflict with or result in a breach of the terms,
conditions or provisions of or constitute a default under any contract, covenant
or instrument under which any such Person is obligated to a third
party.

       

      2.12         Intellectual
Property.  The Company and its Subsidiaries own, or possess all
rights or licenses to use, all trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (collectively, “Intellectual Property”)
necessary to conduct their respective businesses as now conducted and as
proposed to be conducted.  None of the Company’s Intellectual Property
has expired or terminated, or is expected to expire or terminate, within three
years from the date of this Agreement.  The Company does not have any
knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property of others.  There is no claim, action or proceeding being
made or brought, or to the knowledge of the Company, being threatened, against
the Company or its Subsidiaries regarding its Intellectual
Property.  None of the Company or its Subsidiaries is aware of any
instances where its employees, agents, advisors, consultants or representatives
have transferred Intellectual Property of the Company or any Subsidiary without
the consent of the Company or such Subsidiary.

       

      2.13         Assets.  Except
as set forth in Schedule 2.13,
the Company and the Subsidiaries have good and marketable title to all real
property owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens that do not,
individually or in the aggregate, have or result in a Material Adverse
Change.  Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in material
compliance.

       

      2.14         Employee
Benefit Plans.

       

      (a)    Neither
the Company nor its Subsidiaries has a formal plan or commitment, whether
legally binding or not, to create any additional “employee benefit plan” (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law (“ERISA”)), practice or
agreement or modify or change any existing plan, practice or agreement that
would affect any of its employees or terminated employees.  Benefits
under all employee benefit plans are as represented and have not been and will
not be increased subsequent to the date copies of such plans have been
provided.

       

      (b)    Neither
the Company nor its Subsidiaries contributes to or has any obligation to
contribute to, has not at any time contributed to or had an obligation to
contribute to, sponsor or maintain, and has not at any time sponsored or
maintained, a “multi-employer plan” (within the meaning of Section 3(37) of
ERISA) for the benefit of employees or former employees of the Company or the
Subsidiary.

       

      
        
          
          

        

        
          -8-

          
            

          

        

        
          
          

        

         

      

      (c)    The
Company and the Subsidiary have, in all material respects, performed all
obligations, whether arising by operation of law, contract, or past custom,
required to be performed under or in connection with the Company’s Employee
Benefit Plans (each, a “Company
Employee Benefit Plan”), and neither the Company nor its Subsidiaries has
knowledge of the default or violation by any other party with respect
thereto.

       

      (d)    There are
no Actions, suits or claims (other than routine claims for benefits) pending,
or, to the Company’s knowledge, threatened, against any Company Employee Benefit
Plan or against the assets funding any Company Employee Benefit
Plan.

       

      (e)    Neither
the Company nor the Subsidiary maintains nor contributes to any “employee welfare benefit” (as
such term is defined in Section 3(i) of ERISA) plan which provides any
benefits to retirees or former employees of the Company or its
Subsidiaries.

       

      2.15        
Title to
Properties; Encumbrances.

       

      (a)    The
Company and its Subsidiaries have good and marketable title to all of their
respective properties and assets (real, personal or mixed, tangible or
intangible), including without limitation the Intellectual
Property.  None of the Company’s nor its Subsidiaries’ properties or
assets is subject to any Lien, except as set forth on Schedule 2.15, none
of which adversely affects the business or the continued operations of the
Company or its Subsidiaries.

       

      (b)    All
material property and assets (real, personal or mixed, tangible or intangible)
used or required by the Company and its Subsidiaries in the conduct of the
business of the Company and its Subsidiaries are fully owned by the Company
and/or its Subsidiaries (except to the extent of any Liens set forth on Schedule
2.15).  All such property and assets, or the leases or licenses
thereof, constitute all property, assets and contractual rights necessary for
the conduct of the business of the Company and its Subsidiaries as presently
conducted.

       

      2.16        
Insurance.  There
is in full force and effect one or more policies of insurance issued by insurers
of recognized responsibility, insuring the Company and its Subsidiaries and
their properties, business and projects against such losses and risks, and in
such amounts, on both a per occurrence and an aggregate basis, as are customary
in the case of corporations of established reputation engaged in the same or
similar business and similarly situated.

       

      2.17          
Taxes.  The
Company and each of its Subsidiaries has accurately and timely filed all
federal, state, county and local tax returns and reports required to be filed by
it within the applicable period, and the Company and each of its Subsidiaries
has paid all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or
payable.  Such returns and reports are true and correct in all
material respects.  The Company and each of its Subsidiaries has
established adequate reserves for all taxes accrued but not yet
payable.  All tax elections of any type which the Company or its
Subsidiaries has made as of the date hereof are set forth in the Financial
Statements.  None of the federal income tax returns of the Company or
its Subsidiaries has ever been audited by the Internal Revenue
Service.  No claim or deficiency assessment with respect to or
proposed adjustment of the Company’s or its Subsidiaries’ federal, state, county
or local taxes is currently assessed or pending or threatened, and there is no
basis for any such claim, assessment or adjustment.  There is no tax
lien (other than for current taxes not yet due and payable), whether imposed by
any federal, state, county or local taxing authority, outstanding against the
assets, properties or businesses or the Company or its
Subsidiaries.  None of the Company or its Subsidiaries has executed
any waiver of the statute of limitations on the assessment or collection of any
tax or governmental charge.  None of the Company or its Subsidiaries
is a party to any agreement relating to the sharing, allocation or
indemnification of taxes.  The Company and each Subsidiary has
properly charged, collected and paid all applicable sales, use and other similar
taxes.

       

      
        
          
          

        

        
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      2.18   Loans and
Advances.  None of the Company or its Subsidiaries has any
outstanding loans or advances to any Person and none of them is obligated to
make any such loans or advances, except, in each case, for ordinary course
advances to employees in respect of reimbursable business expenses anticipated
to be incurred by them in connection with their performance of services for the
Company or such Subsidiary, as applicable.

       

      2.19   Assumptions,
Guaranties, Etc. of Indebtedness of Other Persons.  None of the
Company or its Subsidiaries has assumed, guaranteed, endorsed or otherwise
become directly or contingently liable for any indebtedness of any other Person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business and except as set forth
on Schedule 2.19.

       

      2.20   Approvals.  Subject
to the accuracy of the Purchaser’s representations and warranties set forth in
Article III, no
registration or filing with, or consent or approval of or other action by, any
federal, state or other governmental agency or instrumentality or any third
party is or will be necessary for the Company’s valid execution, delivery and
performance of the Transaction Documents, the issuance, sale and delivery of the
Preferred Shares or Warrant, the issuance and delivery of the Dividend Shares
or, upon conversion of the Preferred Shares or exercise of the Warrant, the
Company’s issuance and delivery of the Conversion Shares and Warrant Shares,
respectively, other than those (i) which have previously been obtained or made,
(ii) which are required to be obtained from stockholders at the stockholder vote
to be held in connection with the approval of the transactions contemplated by
the Transaction Documents, or (iii) which are required to be made under federal
or state securities laws, which will be obtained or made, and will be effective
within the time periods required by law.

       

      2.21   Offering
of the Preferred Shares.  Assuming the accuracy of the
Purchaser’s representations and warranties set forth in Article III
hereof, the Company has complied with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the Preferred
Shares, the Warrant and the Dividend Shares and, upon conversion of the
Preferred Shares and exercise of the Warrant, the issuance and delivery of the
Conversion Shares and Warrant Shares, respectively.  Neither the
Company nor any Person authorized or employed by the Company as agent, broker,
dealer or otherwise in connection with the offering or sale of the Preferred
Shares, the Dividend Shares, the Warrant, the Conversion Shares and the Warrant
Shares or any security of the Company similar to the Preferred Shares, the
Dividend Shares, the Warrant, the Conversion Shares or the Warrant Shares has
offered the Preferred Shares, the Dividend Shares, the Warrant, the Conversion
Shares, the Warrant Shares or any such similar security for sale to, or
solicited any offer to buy the Preferred Shares, the Dividend Shares, the
Warrant, the Conversion Shares, the Warrant Shares or any such similar security
from, or otherwise approached or negotiated with respect thereto with, any
Person or Persons other than the Purchaser.  Neither the Company nor
any Person acting on its behalf has taken or will take any other action
(including, without limitation, any offer, issuance or sale of any security of
the Company under circumstances which might require the integration of such
security with the Preferred Shares, the Dividend Shares, the Warrant, the
Conversion Shares or the Warrant Shares under the Securities Act or the rules
and regulations of the Commission promulgated thereunder), in either case so as
to subject the offering, issuance or sale of the Preferred Shares, the Dividend
Shares, the Warrant, the Conversion Shares and the Warrant Shares to the
registration provisions of the Securities Act.  Neither the Company
nor any Person acting on its behalf has offered the Preferred Shares, the
Dividend Shares, the Warrant, the Conversion Shares or the Warrant Shares to any
Person by means of general or public solicitation or general or public
advertising, such as by newspaper or magazine advertisements, by broadcast
media, or at any seminar or meeting whose attendees were solicited by such
means.

       

      2.22   Offering
Exemption.  Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Article III, the
offer, issuance and sale of the Preferred Shares, the Dividend Shares and the
Warrant and, upon conversion of the Preferred Shares and exercise of the
Warrant, the issuance and delivery of the Conversion Shares and the Warrant
Shares, respectively, are exempt from registration under the Securities Act, and
will be registered or qualified (or exempt from registration or qualification)
under applicable state securities and “blue sky” laws, as currently in
effect.

       

      
        
          
          

        

        
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      2.23   Brokers;
Financial Advisors.  No agent, broker, investment banker,
finder, financial advisor or other Person is or will be entitled to any broker’s
or finder’s fee or any other commission or similar fee from the Company or its
Subsidiaries, directly or indirectly, in connection with the transactions
contemplated by the Transaction Documents, and no Person is entitled to any fee
or commission or like payment from the Company or its Subsidiaries in respect
thereof based in any way on agreements, arrangements or understandings made by
or on behalf of the Company or any Subsidiary.

       

      2.24   Transactions
With Affiliates.  No employee, officer, director, consultant,
advisor, agent, stockholder or representative of the Company or any Subsidiary,
or member of the family of any such Person, or any corporation, limited
liability company, partnership, trust or other entity in which any such Person,
or any member of the family of any such Person, has a substantial interest or is
an officer, director, trustee, partner or holder of more than three percent (3%)
of the outstanding capital stock thereof, is a party to any transaction with the
Company or any Subsidiary, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by, rental
of real or personal property from or otherwise requiring payments to any such
Person, other than employment-at-will arrangements in the ordinary course of
business.  To the Company’s knowledge, none of the Persons described
in this Section 2.24 has
any direct or indirect ownership interest in any Person with which the Company
or any Subsidiary is affiliated or with which the Company or any Subsidiary has
a business relationship, or any Person that competes with the Company or any
Subsidiary.

       

      2.25   Employees.

       

       
(a)    To the
Company’s knowledge, no key employee and no group of the Company’s or any
Subsidiary’s employees or independent contractors has any plans to terminate
his, her or its employment or relationship as an employee or independent
contractor with the Company or any such Subsidiary, nor does the Company or any
Subsidiary have any present intention to terminate the employment of any key
employee, group of employees, or independent contractors.

       

       
(b)    To the
Company’s knowledge, no employee of the Company or any Subsidiary is a party to
or is otherwise bound by any agreement or arrangement (including, without
limitation, confidentiality agreements, noncompetition agreements, licenses,
covenants or commitments of any nature) or subject to any judgment, decree, or
order of any court or governmental body, (i) that would conflict with such
employee’s obligation to diligently promote and further the Company’s or such
Subsidiary’s interests or perform the duties that have been assigned to such
employee or (ii) that would conflict with the Company’s or such Subsidiary’s
business as now conducted or as proposed to be conducted.

       

        
(c)    None of
the Company or its Subsidiaries is delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed through the date hereof or amounts
required to be reimbursed to them through the date hereof.  The
Company and its Subsidiaries are in compliance in all material respects with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours.  None of the Company or its Subsidiaries is bound by
or subject to (and none of their assets or properties are bound by or subject
to) any written or oral commitment or arrangement with any labor union, and no
labor union has requested or sought to represent any of the employees,
representatives or agents or the Company or its Subsidiaries.  There
is no labor strike, dispute, slowdown or stoppage pending or, to the best of the
Company’s knowledge, threatened against or involving the Company or any
Subsidiary.

       

      
        
          
          

        

        
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(d)    To the
best of the Company’s knowledge, no employee of or consultant to the Company or
any Subsidiary is in violation of any material term of any employment contract
or any other contract or agreement relating to the relationship of any such
employee or consultant with the Company or such Subsidiary.

       

        
(e)    Each
employee and consultant of the Company and its Subsidiaries that has had access
to the Company’s Intellectual Property has entered into an agreement containing
appropriate confidentiality and investment assignment provisions.

       

      2.26    Environmental
and Safety Laws.

       

       
(a)    The
Company and each Subsidiary, the operations of their businesses, and any real
property that the Company or any Subsidiary owns, leases or otherwise occupies
complies and has at all times complied with all federal, state and local laws,
judgments, decrees, orders, consent agreements, authorizations, permits,
licenses, rules, regulations, common or decision law (including, without
limitation, principles of negligence and strict liability) relating in any way
to the protection, investigation or restoration of the environment (including,
without limitation, natural resources), the generation, use, handling,
transportation or disposal of Hazardous Materials or the health or safety
matters of humans and other living organisms, including the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Federal Clean Water
Act, as amended, the Federal Clean Air Act, as amended, the Toxic Substances
Control Act, the Emergency Planning and Community Right-to-Know Act or any state
and local analogue (hereinafter “Environmental
Laws”).  No expenditures are presently required to comply with
any such applicable Environmental Laws.

       

       
(b)    (i) None
of the Company or its Subsidiaries has received any notice of a complaint,
order, directive, claim, request for information, citation or other
communication, written or oral, or any notice of any claim, lawsuit or
proceeding raising a claim or potential claim against the Company, any
Subsidiary or any of their predecessors or any of their respective real
properties now or since formerly owned, leased or operated or other assets
indicating or alleging any damage to the environment or any liability or
obligation under or violation of any Environmental Law, and the Company is not
aware of any basis therefor, and (ii) none of the Company or its Subsidiaries is
subject to any order, decree, injunction or other directive of any governmental
body or authority.

       

       
(c)    (i) None
of the Company or its Subsidiaries has used and, to the Company’s knowledge, no
other person has used any portion of any property currently or previously owned,
operated or leased by the Company or any Subsidiary for the generation,
handling, processing, treatment, transportation storage or disposal of Hazardous
Materials; (ii) none of the Company or its Subsidiaries owns or operates any
underground tank or other underground storage receptacle for Hazardous
Materials, any asbestos-containing materials or polychlorinated biphenyls, and,
to the Company’s knowledge, no underground tank or other underground storage
receptacle for Hazardous Materials, asbestos-containing materials or
polychlorinated biphenyls is located on any portion of any property currently
owned, operated or leased by the Company or any Subsidiary and (iii) to the
Company’s knowledge, none of the Company or its Subsidiaries has caused or
suffered to occur any Releases or threatened Releases of Hazardous Materials on,
at, in, under, above, to, from or about any property currently or owned,
operated or leased by the Company or any Subsidiary.

       

      
        
          
          

        

        
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(d)    The
Company and its Subsidiaries have obtained and are maintaining in full force and
effect all necessary permits, licenses and approvals required by all
Environmental Laws applicable to any owned, operated or leased properties and
the business operations operated thereon, and each of the Company and its
Subsidiaries is in compliance with all such permits, licenses and
approvals.  The Company is not aware of any reason why all necessary
permits, licenses and approvals which have not been currently required for
existing activities of the Company and its Subsidiaries but which will be
required by Environmental Laws to construct, own, test or operate the properties
and business operations contemplated by the Company and its Subsidiaries cannot
be obtained in the ordinary course of business without material difficulty or
delay.

       

       
(e)    The
execution, delivery and performance of this Agreement is not subject to any
Environmental Laws which condition, restrict or prohibit the sale, lease or
other transfer of property or operations, including any so-called “environmental cleanup responsibility
acts” or requirements for the transfer of permits, approvals, or
licenses.  To the Company’s knowledge, there have been no
environmentally related audits, studies, reports, analyses (including soil and
groundwater analyses), or investigations of any kind performed with respect to
the currently or previously owned, leased, or operated properties of the Company
or its Subsidiaries except as set forth in Schedule 2.26.

       

      2.27   Foreign
Corrupt Practices Act; USA Patriot Act.  None of the Company,
its Subsidiaries or, to the best of the Company’s knowledge, any employees,
officers, directors, consultants, advisors, agents, stockholders or
representatives of the Company or other Person acting on behalf of the Company
or any Subsidiary, has violated, or taken any action which would cause the
Company to be in violation of, the Foreign Corrupt Practices Act of 1977, as
amended (the “FCPA”), or
the USA Patriot Act, or any rules and regulations thereunder.  Each of
the Company’s and its Subsidiaries’ internal management and accounting practices
and controls are adequate to ensure compliance with the FCPA and the USA Patriot
Act.  There is not now, and there has never been, any employment by
the Company or any Subsidiary of, or beneficial ownership in the Company or any
Subsidiary by, any governmental or political official in any country in the
world.

       

      2.28   Illegal
or Unauthorized Payments; Political Contributions.  None of the
Company, its Subsidiaries or, to the best of the Company’s knowledge, any
employees, officers, directors, consultants, advisors, agents, stockholders or
representatives of the Company or other Person acting on behalf of the Company
or any Subsidiary has, directly or indirectly, made or authorized any payment,
contribution or gift of money, property, or services, in contravention of
applicable law:  (a) as a kickback or bribe to any Person, or (b) to
any political organization, or the holder of or any aspirant to any elective or
appointive public office, except for personal political contributions not
involving the direct or indirect use of the Company’s or any Subsidiary’s
funds.

       

      2.29   Pending
Changes.  To the Company’s knowledge, there is no pending or
threatened change in any Law, rule, regulation or order applicable to its
business, operations, properties, assets, products and services which is likely
to result in a Material Adverse Change.  To the best of the Company’s
knowledge, there has been no discovery, change or development in the
development, design, manufacture or marketing of any product or service or
proposed product or service of the Company or any Subsidiary, or any product or
service that is or may be competitive with any such product or service or of any
new or improved materials, products, services or processes useful in the
business or the proposed business of the Company or any Subsidiary, to which an
informed investor in the Company would attach importance in its decision to make
an investment in the Company.

       

      
        
          
          

        

        
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      2.30   Investment
Company Act.  The Company is not, nor is it directly or
indirectly controlled by or acting on behalf of, any Person that is an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.

       

      2.31   Registration
Rights.  Except for as set forth in Schedule 2.31
and the rights granted to the Purchaser under the Registration Rights Agreement,
no Person has demand or other rights to cause the Company to file any
registration statement under the Securities Act relating to any securities of
the Company or any right to participate in any such registration statement,
including, without limitation, piggyback registration rights.

       

      2.32   Books and
Records.  Each of the Company’s and its Subsidiaries’ books of
account, ledgers, order books, records and documents accurately and completely
reflect in accordance with usual and customary prudent business practices all
material information relating to the Company’s or Subsidiary’s, as appropriate,
business, the location and collection of the Company’s or Subsidiary’s, as
appropriate, assets, and the nature of all transactions giving rise to the
Company’s or Subsidiary’s, as appropriate, obligations and accounts
receivable.  The Company has previously delivered to the Purchaser and
its counsel complete and correct copies of the Amended Charter and Bylaws and
all amendments thereto, as in effect at the time of the Closing and made
available to the Purchaser all minutes and consents reflecting meetings and
actions taken by the Company’s Board of Directors (the “Board”) and
stockholders.  Such minutes and consents constitute complete and
accurate records of all meetings and consents in lieu of meetings of the Board
and its committees, or body performing a similar function and holders of its
securities since its date of incorporation or formation.

       

      2.33   Disclosure.  The
Company has disclosed to the Purchaser all facts material to the business,
operations, assets, liabilities, prospects, properties, condition (financial or
otherwise) and results of operations of the Company and each
Subsidiary.  None of (i) this Agreement, (ii) any Schedule or Exhibit
to this Agreement, (iii) any other Transaction Documents, or (iv) excepts as set
forth in Schedule
2.33, any document filed by the Company with the Commission pursuant to
the requirements of the Exchange Act (as the information contained in any such
document filed with the Commission is supplemented, updated and/or amended in
light of the disclosures made by the Company to the Purchaser contained in the
documents and materials referenced in subsections (i), (ii) and (iii)
immediately above), contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein and
therein not misleading in light of the circumstances under which such statements
were made.  None of the statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein not
misleading in light of the circumstances under which such statements were
made.

       

      2.34   Permits.  The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which would have a Material Adverse Change, and believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as presently planned to be conducted.  The Company is not in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.

       

      
        
          
          

        

        
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      2.35   SEC and
NASDAQ Matters.

       

       
(a)    The
Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is
listed on the NASDAQ Global Market, and the Company has taken no action designed
to, or likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or de-listing the Common Stock from NASDAQ, nor has
the Company received any notification that the Commission or NASDAQ is
contemplating terminating or suspending such registration or
listing.  The Company is in compliance with all corporate governance
requirements of NASDAQ.  The Company shall comply with all
requirements of NASDAQ and the Commission with respect to the issuance of the
Preferred Shares, the Warrant, the Dividend Shares, the Conversion Shares and
the Warrant Shares and the listing of the Dividend Shares, the Conversion Shares
and the Warrant Shares.

       

       
(b)    Except as
set forth in Schedule
2.35, the Company has implemented and maintains a system of internal
control over financial reporting and a system of disclosure controls and
procedures for the purpose of meeting the requirements of the Commission and the
Sarbanes-Oxley Act of 2002 as applicable to the Company on the date hereof,
except where the failure to implement or maintain such a system would not
result, individually or in the aggregate, in a Material Adverse
Change.

       

       
(c)    The
Company has filed in a timely manner all documents that the Company was required
to file under the Exchange Act during the 12 months preceding the date of this
Agreement.

       

       
(d)    The
Company has not taken and will not, in violation of applicable Law, take, any
action designed to or that might reasonably be expected to cause or result in
unlawful manipulation of the price of the Common Stock.

       

       
(e)    Hein
& Associates LLP, who issued their report with respect to the Company’s
financial statements for the year ended December 31, 2006 and who are reasonably
expected by the Company to issue their report with respect to the financial
statements to be incorporated by reference into the Registration Statement and
the prospectus which forms a part thereof from the Company’s Annual Report on
Form 10-K for the year ended December 31, 2007, is, to the Company’s knowledge,
an independent registered public accounting firm as required by the Securities
Act.

       

      ARTICLE
III

      REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE PURCHASER

       

      3.1     Representations
and Warranties of the Purchaser.  The Purchaser represents and
warrants to the Company that:

       

       
(a)    it is an
entity all of the equity interests of which are owned by “accredited investors” within
the meaning of Rule 501 of Regulation D under the Securities Act, as presently
in effect;

       

      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

         

      

       
(b)    the
Preferred Shares and the Warrant being purchased by it are being acquired for
its own account for the purpose of investment and not with a view to, or for
resale in connection with, any distribution thereof within the meaning of the
Securities Act; and

       

       
(c)    it
understands that (i) the Preferred Shares, the Dividend Shares, the Conversion
Shares, the Warrant and the Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof or Rule 505 or 506 promulgated under the Securities Act, (ii) the
Preferred Shares, the Dividend Shares, the Conversion Shares and the Warrant
Shares must be held indefinitely (subject, however, to the Company’s obligation
to effect the registration of registrable securities in accordance with the
Registration Rights Agreement) unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration, and
(iii) the Preferred Shares, the Dividend Shares, the Conversion Shares, the
Warrant and the Warrant Shares will bear the legend to such effect set forth in
Section 3.3.

       

      3.2     Restricted
Securities.  The Purchaser agrees not to make any disposition
of all or any portion of the Preferred Shares, the Dividend Shares, the
Conversion Shares, the Warrant or the Warrant Shares unless and until such
securities are registered under the Securities Act and under any other
applicable securities laws or such sale or transfer is exempt from such
registration.

       

      3.3     Legend.  The
Purchaser acknowledges that the certificates evidencing the Preferred Shares,
the Dividend Shares, the Conversion Shares, the Warrant and the Warrant Shares
will bear the legend set forth below:

       

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

       

      The
legend set forth above shall be removed by the Company from any certificate
evidencing Preferred Shares, the Dividend Shares, the Conversion Shares or the
Warrant Shares, and the Company shall issue a certificate without such legend to
the holder thereof, upon delivery to the Company of an opinion by counsel (which
may be counsel for the Company) that a registration statement under the
Securities Act is at that time in effect with respect to the legended security
or that such security can be freely transferred in a public sale without such a
registration statement being in effect and that such transfer will not
jeopardize the exemption or exemptions from registration pursuant to which the
Company issued the Preferred Shares, the Dividend Shares, the Conversion Shares
or the Warrant Shares; provided, however, that no opinion shall be required for
dispositions pursuant to Rule 144 under the Securities Act or in any transfer in
compliance with applicable securities laws where the transferee shall receive
securities bearing the legend above.

       

      
        
          
          

        

        
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      ARTICLE
IV

      CONDITIONS TO THE
OBLIGATIONS OF THE PURCHASER AND THE COMPANY

       

      4.1    Conditions
to the Purchaser’s Obligations at the Closing.  The Purchaser’s
obligation to purchase and pay for the Preferred Shares and the Warrant on the
Closing Date is, at its option, subject to the satisfaction, on or before such
Closing Date, of the following conditions, any of which may be waived in whole
or in part by the Purchaser:

       

       (a)    Representations
and Warranties to be True and Correct.  The representations and
warranties of the Company under this Agreement and in each other Transaction
Document shall be true, complete and correct on and as of the Closing Date, with
the same effect as though such representations and warranties had been made on
and as of such date, and the Company’s Chief Executive Officer shall have
certified to such effect to the Purchaser in writing.

       

       (b)    Performance.  The
Company shall have performed and complied with all agreements and covenants
contained herein required to be performed or complied with by it prior to or at
the Closing Date, and the Company’s Chief Executive Officer shall have certified
to the Purchaser in writing to such effect and to the further effect that all of
the conditions set forth in this Article IV have
been satisfied.

       

       (c)    All
Proceedings to be Satisfactory.  All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchaser and its counsel, and the Purchaser and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they reasonably may request.

       

       (d)    Approvals;
No Violation of Law.  The Company shall have obtained any and
all consents, waivers, approvals or authorizations, with or by any governmental
body and all consents, waivers, approvals or authorizations of any other Person,
required for the valid execution of this Agreement and each of the other
Transaction Documents and for the consummation of the transactions contemplated
hereby and thereby including, without limitatation, the approval of The NASDAQ
Stock market, and the purchase and payment of the Preferred Shares and the
Warrant at the Closing Date on the terms and conditions as provided herein shall
not violate any Law applicable to the Company or the Purchaser.

       

       (e)    Consent
of Holders of Series A Preferred Stock.  The Company shall have
received any and all consents, waivers or approvals from the holders of Series A
Preferred Stock necessary to issue and deliver the Preferred Shares, the
Warrant, the Dividend Shares, the Conversion Shares and the Warrant Shares and
to consummate the transactions contemplated under the Series B Certificate of
Designations and the Transaction Documents in the form attached hereto as Exhibit
E.

       

       (f)    No
Injunction.  No governmental body or any other Person shall
have issued an order, injunction, judgment, decree, ruling or assessment which
shall then be in effect restraining or prohibiting the completion of the
transactions contemplated hereby, nor, to the Company’s knowledge, shall any
such order, injunction, judgment, decree, ruling or assessment be threatened or
pending.

       

      
        
          
          

        

        
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       (g)    Registration
Rights Agreement.  The Company and the Purchaser shall have
executed and delivered the Registration Rights Agreement.

       

       (h)    No
Material Adverse Change.  No Material Adverse Change shall have
occurred between the date of this Agreement and the Closing Date, and the
Company’s Chief Executive Officer shall have certified to such effect to the
Purchaser in writing.

       

       (i)     Qualification
Under State Securities Laws.  All registrations,
qualifications, permits and approvals required prior to issuance under
applicable state securities laws shall have been obtained for the lawful
execution, delivery and performance of this Agreement and each of the other
Transaction Documents, including without limitation, the offer, sale, issuance
and delivery of the Preferred Shares and the Warrant to be purchased
hereunder.

       

       (j)    Series B
Certificate of Designations.  On or prior to the Closing, the
Series B Certificate of Designations shall have been filed with the Secretary of
State of the State of Delaware, and the Amended Charter shall be in full force
and effect on the Closing Date.

       

       (k)    Preemptive
Rights.  All Persons having any preemptive, first refusal or
other rights with respect to the issuance of the Preferred Shares, the Warrant,
the Dividend Shares, the Conversion Shares or the Warrant Shares shall have
irrevocably waived the same in writing.

       

       (l)    Expenses.  The
Company shall have paid the fees and expenses of the Purchaser, including the
fees and disbursements of the Purchaser’s counsel invoiced at the Closing, in
accordance with Section 6.1.

       

      (m)   Supporting
Documents.  The Purchaser and its counsel shall have received
copies of the following documents:

       

      (i)    (A) the
Amended Charter, certified as of a recent date by the Secretary of State of the
State of Delaware, (B) a certificate of said Secretary dated as of a recent date
as to the Company’s due incorporation and good standing and the Company’s
payment of all excise taxes, and listing all documents of the Company on file
with said Secretary, and (C) a certificate of the Secretary of State of the
State of California and a certificate from the Franchise Tax Board of the State
of California, dated as of a recent date, with respect to the good standing of
the Company;

       

      (ii)   a
certificate of the Company’s Secretary dated the Closing Date,
certifying:  (A) that attached thereto is a true and complete copy of
the Bylaws as in effect on the date of such certification; (B) that attached
thereto is a true and complete copy of all resolutions adopted by the Board
authorizing the Series B Certificate of Designations, the execution, delivery,
and performance of each of the Transaction Documents, the issuance, sale and
delivery of the Preferred Shares, the Dividend Shares and the Warrant and the reservation of
the Conversion Shares and the Warrant Shares, and that all such resolutions are
in full force and effect and are the only resolutions adopted in connection with
the transactions contemplated by the Transaction Documents; (C) that the Amended
Charter has not been amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (i)(A) above; and (D) to the
incumbency and specimen signature of each officer of the Company executing any
of the Transaction Documents, the stock certificates representing the Preferred
Shares and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause
(ii); and

       

      (iii)   such
additional supporting documents and other information with respect to the
operations and affairs of the Company and its Subsidiaries as the Purchaser or
its counsel reasonably may request.

       

      
        
          
          

        

        
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       (n)    Cross-Receipt.  The
Company and the Purchaser shall have executed and delivered a cross-receipt
acknowledging the Company’s delivery to the Purchaser of the Preferred Shares
and the Warrant and the Purchaser’s payment therefor.

       

       (o)    Opinion
of Company’s Counsel.  The Purchaser shall have received from
Rutan & Tucker LLP, counsel for the Company, an opinion dated the Closing
Date, in form and scope satisfactory to the Purchaser and its counsel, in the
form set forth in Exhibit
F.

       

       (p)    Bank
Waivers.  The Borrowers (as defined in the Credit Agreement, as
defined below) shall have obtained waivers from a sufficient number of the
lenders party to that certain Credit Agreement, dated as of February 27, 2007
(as amended, the “Credit
Agreement”), among Pacific Ethanol Madera LLC, Pacific Ethanol Columbia,
LLC, Pacific Ethanol Stockton, LLC, Pacific Ethanol Magic Valley, LLC, Pacific
Ethanol Holding Co. LLC, WestLB AG, New York Branch, as administrative agent,
waiving all defaults under the Credit Agreement existing as of March 17, 2008,
in a form substantially satisfactory to the Purchaser.

       

       (q)    No
Defaults under Loan Agreements. After
giving effect to the waivers described in Section 4.1(p), on
the Closing Date there shall be no Defaults or Events of Default (as defined in
the Credit Agreement) under the Credit Agreement, nor any defaults or events of
default under any other loan agreement to which the Company or any of its
affiliates are party.

       

       (r)     2007 Form
10-K. The Company shall have filed with the Commission its annual report
on Form 10-K for the year ended December 31, 2007 (the “2007 Form 10-K”) on or prior
to March 31, 2008 and the audit opinion of the Company’s independent registered
public accounting firm, Hein & Associates LLP, contained in the 2007 Form
10-K shall not contain a “going concern” qualification.

       

       (s)    Restatement
of Prior Period Financial Statements.  The Company shall not
have restated any of the Company’s financial statements nor shall the Company
have filed a Form 8-K with the Commission pursuant to Item 4.02 thereunder with
respect to any of the Company’s financial statements filed with the
Commission.

       

       (t)    Securities
Litigation.  No class action securities litigation shall have
been commenced against the Company.

       

       (u)    NASDAQ
Listing.  The Company’s common stock shall be listed for
trading on The NASDAQ Global Market.

       

      4.2    Conditions
to the Company’s Obligations at the Closing.  The Company’s
obligation to sell and issue the Preferred Shares and the Warrant being sold and
issued by it on the Closing Date is, at its option, subject to the satisfaction,
on or before such Closing Date, of the following conditions, any of which may be
waived in whole or in part by the Company:

       

       (a)    Representations
and Warranties to be True and Correct.  The representations and
warranties of the Purchaser contained in Article III
shall be true, complete and correct on and as of the Closing Date, with the same
effect as though such representations and warranties had been made on and as of
such date.

       

       (b)    Registration
Rights Agreement.  The Purchaser shall have executed and
delivered the Registration Rights Agreement.

       

      
        
          
          

        

        
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       (c)    Cross
Receipt.  The Company and the Purchaser shall have executed and
delivered a cross-receipt acknowledging the Company’s delivery to the Purchaser
of the Preferred Shares and the Warrant and the Purchaser’s payment
therefor.

       

       (d)    Purchase
Price Paid.  The Purchaser shall have paid the purchase price
for the Preferred Shares and the Warrant to the Company as set forth in Section 1.2(a).

       

      ARTICLE
V

      COVENANTS OF THE
COMPANY

       

      The
Company covenants and agrees with the Purchaser that:

       

      5.1     Reserve
for Conversion Shares and Warrant Shares.  The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and effecting the exercise of the Warrant and otherwise complying with
the terms of this Agreement, such number of its duly authorized shares of Common
Stock as shall be sufficient to effect the conversion of the Preferred Shares
and effecting the exercise of the Warrant from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Preferred Shares and exercise of the Warrant or
otherwise to comply with the terms of this Agreement, the Company will forthwith
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.  The Company will obtain any authorization,
consent, approval or other action by or make any filing with any court or
governmental or administrative body that may be required under applicable
federal and state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares and upon exercise of the
Warrant.

       

      5.2     Corporate
Existence.  The Company shall preserve and maintain, and, cause
each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
or lease of its properties.

       

      5.3     Preservation
of Property and Assets.  The Company shall, and shall cause
each of its Subsidiaries to (a) maintain or cause to be maintained in good
repair, working order and condition the properties now or hereafter owned,
leased or otherwise possessed by it (and make or cause to be made all needed and
proper repairs, renewals, replacements and improvements thereto) which are
necessary so that the business carried on in connection therewith may be
properly conducted at all times and (b) maintain and hold in full force and
effect all franchises, licenses, permits, certificates, authorizations,
qualification, accreditations and other rights, consents and approvals (whether
issued, made or given by a governmental body or otherwise), necessary to own and
operate its properties and to carry on its business as presently conducted and
as presently planned to be conducted.  The Company shall not cause or
permit a Release of any Hazardous Material on, at, in, under, above, to, from or
about any of the property where such Release would violate in any respect, or
form the basis for any claims under, any Environmental Laws.

       

      
        
          
          

        

        
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      5.4     Properties,
Business, Insurance.  The Company shall obtain and maintain and
cause each of its Subsidiaries to maintain as to its respective properties and
business, with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated.

       

      5.5     Inspection,
Consultation and Advice.  The Company shall permit, and cause
each of its Subsidiaries to permit, the Purchaser and such persons as it may
designate to visit and inspect any of the properties of the Company or its
Subsidiaries, examine their books and take copies and extracts therefrom,
discuss the affairs, finances and accounts of the Company or its Subsidiaries
with their officers, employees and public accountants (and the Company hereby
authorizes said accountants to discuss with the Purchaser and such designees
such affairs, finances and accounts), and consult with and advise the management
of the Company and its Subsidiaries as to the Company’s and its Subsidiaries’
affairs, finances and accounts.

       

      5.6     Restrictive
Agreements Prohibited.  None of the Company or its Subsidiaries
shall become a party to any agreement which by its terms restricts the Company’s
performance of this Agreement or any of the other Transaction
Documents.

       

      5.7     Transactions
with Affiliates.  Except for transactions contemplated by this
Agreement, transactions with Cascade Investment, L.L.C., a Washington limited
liability company, or as otherwise approved by the Board, none of the Company or
its Subsidiaries shall enter into any transaction with any director, officer,
employee or holder of more than three percent (3%) of the outstanding capital
stock of any class or series of capital stock of the Company or any Subsidiary,
member of the family of any such Person, or any corporation, partnership, trust
or other entity in which any such Person, or member of the family of any such
Person, is a director, officer, trustee, partner or holder of more than three
percent (3%) of the outstanding capital stock thereof.

       

      5.8     Payment
of Taxes and Indebtedness.  The Company shall pay and
discharge, and cause each Subsidiary to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income, profits or business, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the Company or its
Subsidiaries; provided, however, that neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim which is being contested or extended in good
faith and by appropriate proceedings if the Company or such Subsidiary shall
have set aside on its books sufficient reserves, if any, with respect
thereto.  The Company shall pay and cause any Subsidiary to pay, when
due, or in conformity with customary trade terms, all lease obligations, all
trade debt, and all other indebtedness incident to the operations of the Company
or such Subsidiary, except such as are being contested in good faith and by
proper proceedings if the Company or Subsidiary concerned shall have set aside
on its books sufficient reserves, if any, with respect thereto.

       

      5.9     Internal
Accounting Controls.  The Company shall devise and maintain
systems, and shall cause each of its Subsidiaries to make and keep books,
records and accounts which, in reasonable detail, accurately and fairly reflect
its transactions and dispositions of its assets and shall devise and maintain,
and shall cause each of its Subsidiaries to devise and maintain, internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management’s general or specific
authorization, (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP or any other criteria applicable
to such statements, and to maintain accountability for assets, (c) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (d) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

       

      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

         

      

      5.10    Change of
Operations.  The Company shall not, and shall not permit any of
its Subsidiaries to, change the general character of its business as conducted
on the date hereof or as presently proposed to be conducted, or engage in any
type of business not directly related to such business as presently and normally
conducted or as presently proposed to be conducted.

       

      5.11    Indemnity.

       

       
(a)    The
Company agrees to indemnify, defend and hold harmless the Purchaser, its
Affiliates and their respective directors, managers, officers, members,
stockholders, employees, Affiliates, agents, trustees, advisors (including,
without limitation, attorneys, accountants and financial advisors),
attorneys-in-fact, successors and assigns (collectively, “Indemnified Parties”) from
and against any and all losses, claims, liabilities, damages, deficiencies,
costs or expenses (including, without limitation, interest, penalties,
reasonable attorneys’ fees, disbursements and related charges and any costs or
expenses that an Indemnified Party incurs to enforce its right to
indemnification) (collectively, “Losses”) based upon, arising
out of or otherwise in respect of any inaccuracy in or breach of any
representations, warranties, covenants or agreements of the Company contained in
this Agreement or any of the other Transaction Documents.

       

       
(b)    The
provisions of this Section 5.11
shall not limit or impair any right or remedy arising from breach of this
Agreement or any of the other Transaction Documents.  In addition to
any other remedy provided by law, injunctive relief may be obtained to enjoin
the breach, or threatened breach, of any provision of this Agreement and each
party shall be entitled to specific performance by the others of their
obligations hereunder and thereunder.  All remedies, either under this
Agreement, by law or as may otherwise be afforded to the Purchaser or the
Company, as the case may be, shall be cumulative.

       

      5.12    Compliance
with Laws.  The Company shall comply, and cause each Subsidiary
to comply, with all applicable Laws.

       

      5.13    Use of
Proceeds.  The Company agrees to use the net proceeds from the
sale and issuance of the Preferred Shares and the Warrant pursuant to this
Agreement for (a) the payment of outstanding fees in connection with the
construction of certain facilities of the Company, including the Stockton and
Madera facilities, and (b) working capital.

       

      5.14    HSR Act
Filings.  To the extent required with respect to the Dividend
Shares, the Conversion Shares and the Warrant Shares after the Closing, the
Company will file, and will provide any and all assistance to the Purchaser
necessary to enable the Purchaser to file, all notices, reports and other
documents required to be filed with governmental entities, including without
limitation the Federal Trade Commission and the U.S. Department of Justice, in
connection with the transactions set forth in the Transaction
Documents.  Without limitation, if and as requested by the Purchaser,
the Company shall prepare and file, as promptly as practical, one or more
Notification and Report Forms complying with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the “HSR Act”), and related laws,
rules and regulations.  For the avoidance of doubt, after the Closing
no Conversion Shares or Warrant Shares shall be issued to the Purchaser pursuant
to the Transaction Documents until such time as any waiting period required by
the HSR Act in connection with such issuance shall have expired or been
terminated.

       

      5.15    Stockholder
Approval.  As soon as practicable after the date hereof, the
Company shall use its commercially best efforts to hold a meeting of the
Company’s stockholders in compliance with the rules of the Commission regarding
proxies, consents and authorizations of stockholders in Section 14 of the
Exchange Act, and the rules and regulations promulgated thereunder, and shall
make all appropriate filings related thereto (including, without limitation, the
filing of any effective proxy statement) with the Commission to give effect
hereto, to approve the Agreement and the transactions contemplated hereby,
including the issuance of any Dividend Shares and the issuance of any Conversion
Shares as a result of a conversion price adjustment pursuant to Section 5(d) of
the Series B Certificate of Designations.

       

      
        
          
          

        

        
          -22-

          
            

          

        

        
          
          

        

         

      

      5.16    New
Capital Expenditures.  Until such time as the loans represented
by the Secured Promissory Note dated November 28, 2007, and the Secured
Promissory Note dated December 27, 2007, by and between Pacific Ethanol
Imperial, LLC, and the Purchaser (as they have been amended) have been paid in
full, the Company shall not without the written consent of the Purchaser
initiate any New Capital Project, nor shall the Company permit any of its
Subsidiaries to initiate any New Capital Project.

       

      5.17    Undertakings
of the Company With Respect to Series A Preferred Stock
Transferees.  In connection with any transfer of shares of
Series A Preferred Stock, the Company undertakes to (i) provide written
notice to any proposed transferee of such shares of Series A Preferred Stock
prior to the closing of such transfer advising such transferee(s) that the
Series B Preferred Stock is a series of capital stock that ranks pari passu with the Series A
Preferred Stock with respect to dividend and liquidation rights and
(ii) treat any dividend and liquidation distributions with respect to the
Series A Preferred Stock and the Series B Preferred Stock on a pari passu
basis.

       

      ARTICLE
VI

      MISCELLANEOUS

       

      6.1     Expenses.  At
the Closing the Company shall reimburse the Purchaser for all legal and
accounting fees and expenses incurred by the Purchaser in connection with the
transactions contemplated hereby.  The Company agrees that the fees
and expenses incurred by the Purchaser through the Closing Date in connection
with the transactions contemplated hereby may be paid directly by the Purchaser
to such persons and deducted from the purchase price payable at the
Closing.  The Company shall pay all costs and expenses that it incurs
in connection with the transactions.  The Company further agrees to
reimburse the Purchaser on demand for the Purchaser’s reasonable out of pocket
expenses incurred in connection with any amendment to, or waiver or enforcement
of, this Agreement or the other Transaction Documents.  The Company
shall also pay all stamp and other taxes and duties levied in connection with
the issuance of the Preferred Shares and the Dividend Shares or, upon conversion
thereof, the Conversion Shares or upon exercise of the Warrant, the Warrant
Shares.

       

      6.2     Survival
of Agreements.  All covenants, agreements, representations and
warranties made in any of the Transaction Documents or any certificate or
instrument delivered to the Purchaser pursuant to or in connection with any of
the Transaction Documents shall survive the execution and delivery of all of the
Transaction Documents, the issuance, sale and delivery of the Preferred Shares
and the Warrant, and the issuance and delivery of the Dividend Shares, the
Conversion Shares and the Warrant Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.

       

      6.3    Brokerage.  Each
party hereto will indemnify and hold harmless the others against and in respect
of any claim for brokerage or other commissions relative to the Transaction
Documents or to the transactions contemplated thereby, based in any way on
agreements, arrangements or understandings made or claimed to have been made by
such party with any third party.

       

      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

         

      

      6.4    Parties
in Interest.  All representations, warranties, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.  Without
limiting the generality of the foregoing, all representations, covenants and
agreements benefiting the Purchaser shall inure to the benefit of any and all
subsequent holders from time to time of the Preferred Shares, the Warrant, the
Dividend Shares, the Conversion Shares and the Warrant Shares, as the case may
be.  Nothing in this Agreement shall create or be deemed to create any
third-party beneficiary rights in any Person other than the parties to this
Agreement or their respective successors and assigns except as expressly
provided in this Agreement.

       

      6.5    Specific
Performance.  Each of the parties hereto acknowledges and
agrees that the breach of this Agreement would cause irreparable damage to the
other party hereto and that the other party hereto will not have an adequate
remedy at law.  Therefore, the obligations of each of the parties
hereto under this Agreement shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection
therewith.  Such remedies, however, shall be cumulative and not
exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.

       

      6.6    Further
Assurances.  The Company and the Purchaser each agree to
execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby.

       

      6.7    Submission
to Jurisdiction; Consent to Service of Process.

       

       (a)    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.

       

       (b)    Each of
the parties hereto hereby consents to process being served by any party to this
Agreement in any suit, action or proceeding by the mailing of a copy thereof in
accordance with the provisions of Section 6.8.

       

      6.8    Notices.  Any
notice, request, demand or other communication required or permitted to be given
to a party pursuant to the provisions of this Agreement will be in writing and
will be effective and deemed given under this Agreement on the earliest
of:  (a) the date of personal delivery, (b) the date of transmission
by facsimile, with confirmed transmission and receipt, (c) two (2) days after
deposit with a nationally-recognized courier or overnight service and (d) five
(5) days after mailing via first-class mail.  All notices not
delivered personally or by facsimile will be sent with postage and other charges
prepaid and properly addressed to the party to be notified at the address set
forth for such party (i) if to the Purchaser, to Lyles United, LLC, 1210 West
Olive Avenue, Fresno, CA, 93728, attention:  Will Lyles, Vice
President, with a copy to Howard Rice Nemerovski Canady Falk & Rabkin, A
Professional Corporation, Three Embarcadero Center, Seventh Floor, San
Francisco, CA 94111, attention: Gary P. Kaplan, facsimile (415) 217-5910, and
(ii) if to the Company, to Pacific Ethanol, Inc., 400 Capitol Mall, Suite 2060,
Sacramento, CA 95814, attention:  Neil Koehler, with a copy to Rutan
& Tucker LLP, 611 Anton Boulevard, 14th Floor, Costa Mesa, CA 92626,
attention:  Larry A. Cerutti, facsimile (714) 546-9035.  Any
party hereto (and such party’s permitted assigns) may change such party’s
address for receipt of future notices hereunder by giving written notice to the
Company and the Purchaser.

       

      
        
          
          

        

        
          -24-

          
            

          

        

        
          
          

        

         

      

      6.9    Governing
Law.  This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with, the laws of the State of
California, without giving effect to the principles of conflicts of laws
thereunder which would specify the application of the law of another
jurisdiction.

       

      6.10   Entire
Agreement.  This Agreement, including the Schedules and
Exhibits hereto, together with the other Transaction Documents, constitutes the
sole and entire agreement of the parties with respect to the subject matter
hereof.  All Schedules and Exhibits hereto are hereby incorporated
herein by reference.

       

      6.11   Counterparts.  This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

       

      6.12   Amendments
and Waivers.  This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the Purchaser.  No action taken pursuant to this
Agreement, including without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representation, warranty, covenant or agreement
contained herein.  The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach.  No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy.  All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by
law.

       

      6.13   Severability.  If
any provision of this Agreement shall be declared void or unenforceable by any
judicial or administrative authority, the validity of any other provision and of
the entire Agreement shall not be affected thereby.

       

      6.14   Titles
and Subtitles; Interpretive Matters.  The titles and subtitles
used in this Agreement are for convenience of reference only and are not to be
considered in construing or interpreting any term or provision of this
Agreement.  No provision of this Agreement will be interpreted in
favor of, or against, any of the parties hereto by reason of the extent to which
any such party or its counsel participated in the drafting thereof or by reason
of the extent to which any such provision is inconsistent with any prior draft
hereof or thereof.

       

      6.15   Facsimile
Signatures.  Any signature page delivered by a fax machine
shall be binding to the same extent as an original signature page, with regard
to any agreement subject to the terms hereof or any amendment
thereto.  Any party who delivers such a signature page agrees to
deliver promptly an original counterpart to each party to whom the faxed
signature page was sent.

       

      
        
          
          

        

        
          -25-

          
            

          

        

        
          
          

        

         

      

      6.16   Other
Remedies.  In addition to those remedies specifically set forth
herein and in the Transaction Documents, if any, each party may proceed to
protect and enforce its rights under this Agreement and the Transaction
Documents either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Agreement or in the Transaction Documents.  No right or remedy
conferred upon or reserved to any party under this Agreement or the Transaction
Documents is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to every other right and
remedy given under this Agreement and the Transaction Documents or now and
hereafter existing under applicable law.

       

      6.17   Certain
Defined Terms.  As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

       

      “Affiliate” means, with
respect to any Person, (i) any other Person of which securities or other
ownership interests representing more than fifty percent (50%) of the voting
interests are, at the time such determination is being made, owned, Controlled
or held, directly or indirectly, by such Person, or (ii) any other Person which,
at the time such determination is being made, is Controlling, Controlled by or
under common Control with, such Person. As used herein, “Control”, whether used as a
noun or verb, refers to the possession, directly or indirectly, of the power to
direct, or cause the direction of, the management or policies of a Person,
whether through the ownership of voting securities or otherwise.

       

      “Business Day” means any day
except Saturday, Sunday and any day which is a federal legal holiday or a day on
which banking institutions in the State of California are authorized or required
by law or other governmental action to close.

       

       “Closing” shall mean the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents.

       

      “Closing Date” shall mean the
Business Day immediately following the date on which all of the conditions set
forth in Sections 4.1
and 4.2 are satisfied, or such other date as the parties may agree; provided, however, that if such
conditions are not met (or waived) in full prior to April 30, 2008, the
Purchaser shall not be required to proceed with the Closing and this Agreement
shall terminate and be of no further force or effect.

       

      “Commission” shall mean the U.
S. Securities and Exchange Commission.

       

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

       

      “Hazardous Material” shall
mean any element, compound, substance or other material (including, without
limitation, any pollutant, contaminant, hazardous waste, hazardous substance,
chemical substance, or product) that is listed, classified or regulated pursuant
to any Environmental Law, including, without limitation, any petroleum product,
by-product or additive, asbestos, presumed asbestos-containing material,
asbestos-containing material, medical waste, chlorofluorocarbon, hydro
chlorofluorocarbon, lead-containing paint, polychlorinated biphenyls,
radioactive material or radon.

       

      
        
          
          

        

        
          -26-

          
            

          

        

        
          
          

        

         

      

      “Law,” with respect to any
Person, shall mean such Person’s certificate of incorporation or other
organizational documents, its by-laws and any foreign, federal, state or local
law, statute, rule, regulation, ordinance, code, directive, writ, injunction,
decree, judgment or order applicable to such Person.

       

      “Lien” or “Liens” shall mean any
mortgage, pledge, security interest, conditional sale or other title retention
agreement, encumbrance, lien, easement, claim, right, covenant, restriction,
right of way, warrant, option or charge of any kind.

       

      “Material Adverse Change”
shall mean a material adverse change in the business, operations, assets,
liabilities, prospects, properties, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a
whole.

       

      “New Capital Project” means
any project or series of projects involving the investment of more than $1.0
million of new capital for the acquisition or improvement of a fixed asset which
extends the life or increases the productivity of the asset, individually or in
the aggregate, which is not already contemplated by the Company’s cash flow
projections as of February 27, 2008, copies of which have been provided to the
Purchaser.

       

      “Person” shall mean an
individual, corporation, trust, partnership, limited liability company, joint
venture, unincorporated organization, government body or any agency or political
subdivision thereof, or any other entity.

       

      “Registration Rights
Agreement” shall mean the Registration Rights Agreement between the
Company and the Purchaser, in the form attached hereto as Exhibit D.

       

      “Release” shall mean any past
or present release, spill, leak, leaching, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping.

       

      “Subsidiary(ies)” shall mean
any other corporation, limited liability company, association, joint stock
company, joint venture or business trust of which, as of the date hereof or
hereafter, (i) more than fifty percent (50%) of the outstanding voting stock,
share capital or other equity interests is owned either directly or indirectly
by any Person or one or more of its Subsidiaries, or (ii) the management of
which is otherwise controlled, directly, or indirectly through one or more
intermediaries, or both, by any Person and/or its
Subsidiaries.  Unless otherwise specified to the contrary herein,
Subsidiary(ies) shall refer to the Company’s Subsidiary(ies).

       

      “Transaction Documents” shall
mean this Agreement, the Warrant, the Registration Rights Agreement, and all
other agreements and instruments and any other documents, certificates,
instruments or agreements executed pursuant to or in connection with any such
document or this Agreement, as such documents may be amended from time to
time.

       

      [SIGNATURE
PAGES FOLLOW]

       

      
        
          
          

        

        
          -27-

          
            

          

        

        
          
          

        

      

      IN
WITNESS WHEREOF, the Company and the Purchaser have executed this Purchase
Agreement as of the day and year first above written.

       

      
      

       

      
        	

                COMPANY: 

              	

                PACIFIC
      ETHANOL, INC. 

              
	 	 
	 	

                By:
      /s/ NEIL M.
      KOEHLER 

              
	 	Name: Neil M.
      Koehler 
	 	Title:
      CEO 
	 	 
	 	 
	

                PURCHASER: 

              	

                LYLES
      UNITED, LLC 

              
	 	 
	 	 
	 	

                By:
      /s/ GERALD V.
      LYLES 

              
	 	

                     
      Gerald V. Lyles, President 

              

      

       

       

       

      -28-exv10w33

 

Exhibit 10.33

October 26, 2007

Joseph Bronson

6838 Rockview Ct.

San Jose, CA 95120

	 	 	 
	Re:

	 	Advisory Services Agreement

Dear Joe:

     We are pleased that you will continue working with Advanced Energy Industries, Inc. (the
“Company”) following your resignation from the Board of Directors of the Company. Pursuant to this
letter agreement (“Agreement”), you are hereby engaged (effective immediately upon your resignation
from the Board of Directors) as an advisor to the Chief Executive Officer. In such capacity, you
will provide advisory services to the Company, as and when reasonably requested by the Chief
Executive Officer, which services may include advice and support in respect of:

	 	Ø	 	public company governance matters

	 	Ø	 	presentations to and other communications with the Board of Directors

	 	Ø	 	management of the Executive Leadership Team

     You will provide, and the Chief Executive Officer will request you to provide, a minimum of 25
hours of services under this Agreement per calendar quarter, but you will not be required by the
Company to provide more than 50 hours of such services in any calendar quarter.

     You will not receive any cash compensation, nor will you be granted any stock options,
restricted stock units or other equity awards, for your service. You will, however, be entitled to
reimbursement of expenses reasonably incurred by you in the fulfillment of your duties hereunder,
in accordance with the expense reimbursement policies and practices of the Company. In addition,
the stock options and restricted stock units that you currently hold, as set forth in
Attachment A hereto, will continue to vest and be exercisable in accordance with their
terms, so long as your Service (within the meaning of the plan under which such equity awards were
granted) with the Company continues.

 

 

Joseph Bronson

October 26, 2007

Page 2

     You shall be an independent contractor, not an employee, of the Company. Accordingly, you
shall not be entitled to any benefits accorded to the Company’s employees. Under no circumstances
shall you look to the Company as, or represent to any person that the Company is, your employer,
partner, agent or principal. Nothing in this Agreement shall be construed to authorize you to act
on behalf of the Company or to bind the Company to or under any obligation, agreement or
arrangement.

     This Agreement may be terminated by you or the Company, for any reason or no reason, upon 30
days’ prior written notice of termination to the other party. Neither this Agreement nor any of
the rights or obligations hereunder may be assigned or delegated by either party. This Agreement
shall not be binding upon any successor to the Company, unless you and the Company (or the
successor to the Company) otherwise agree in writing.

     This Agreement constitutes the entire agreement between you and the Company in respect of the
subject matters hereof and may not be amended, except by a written instrument executed and
delivered by both you and the Company.

     I look forward to building this new relationship with you.

	 	 	 	 	 
	 	Very truly yours,

Hans Betz

Chief Executive Officer

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