Document:

ex44.htm

    Exhibit 4.4

    

     

    THIS
WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGIS­TERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  EXCEPT
AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF
MAY __, 2008, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRA­TION
STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM,
SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 OR REGULATION S UNDER SUCH ACT.

     

    Right to
Purchase ________ Shares of Common Stock, par value $.001 per share

     

    SERIES
B STOCK PURCHASE WARRANT

     

    THIS CERTIFIES THAT, for value
received, _________ or its registered assigns, is entitled to purchase from
Bonanza Oil & Gas,
Inc., a Nevada corporation (the “Company”), at any time or from time to
time during the period specified in Paragraph 2 hereof, ___________fully
paid and nonassessable shares of the Company’s Common Stock, par value $.001 per
share (the “Common Stock”), at an exercise price per share equal to $1.00 (the
“Exercise Price”). The term “Warrant Shares,” as used herein, refers to the
shares of Common Stock purchasable hereunder.  The Warrant Shares and
the Exercise Price are subject to adjustment as provided in Paragraph 4
hereof.  The term “Warrants” means this Warrant and the other warrants
issued pursuant to that certain Securities Purchase Agreement, dated May __,
2008, by and among the Company and the Buyers listed on the execution page
thereof (the “Securities Purchase Agreement”).

     

    This
Warrant is subject to the following terms, provisions, and
conditions:

     

    1. Manner of Exercise; Issuance
of Certificates; Payment for Shares.

     

    
      	
              Subject
      to the provisions hereof, this Warrant may be exercised by the holder
      hereof, in whole or in part, by the surrender of this Warrant, together
      with a completed exercise agreement in the form attached hereto (the
      “Exercise Agreement”), to the Company during normal business hours on any
      business day at the Company’s principal executive offices (or such other
      office or agency of the Company as it may designate by notice to the
      holder hereof), and upon payment to the Company in cash, by certified or
      offi­cial bank check or by wire transfer for the account of the
      Company of the Exercise Price for the Warrant Shares specified in the
      Exercise Agreement.  The Warrant Shares so purchased shall be
      deemed to be issued to the holder hereof or such holder’s designee, as the
      record owner of such shares, as of the close of business on the date on
      which this Warrant shall have been surrendered, the completed Exercise
      Agreement shall have been deliv­ered, and payment shall have been made
      for such shares as set forth above.  Certifi­cates for the
      Warrant Shares so purchased, representing the aggregate number of shares
      specified in the Exercise Agreement, shall be delivered to the holder
      hereof within a reasonable time, not exceeding three (3) business days,
      after this Warrant shall have been so exercised.   If this
      Warrant shall have been exercised only in part, then, unless this Warrant
      has expired, the Company shall, at its expense, at the time of delivery of
      such certificates, deliver to the holder a new Warrant representing the
      number of shares with respect to which this Warrant shall not then have
      been exercised.

            

    

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    Notwithstanding
anything in this Warrant to the contrary, in no event shall the holder of this
Warrant be entitled to exercise a number of Warrants (or portions thereof) in
excess of the number of Warrants (or portions thereof) upon exercise of which
the sum of (i) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised Warrants and the
unexercised or unconverted portion of any other securities of the Company
(including the Notes (as defined in the Securities Purchase Agreement)) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein) and (ii) the number of shares of Common Stock issuable upon exercise of
the Warrants (or portions thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by the
holder and its affiliates of more than 4.9% of the outstanding shares of Common
Stock.  For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (i) of the preceding
sentence.  Notwithstanding anything to the contrary contained herein,
the limitation on exercise of this Warrant set forth herein may not be amended
without (i) the written consent of the holder hereof and the Company and (ii)
the approval of a majority of shareholders of the Company.

     

    2. Period of
Exercise.

     

    
      	
              This
      Warrant is exercisable at any time or from time to time on or after the
      date on which this Warrant is issued and delivered pursuant to the terms
      of the Securities Purchase Agreement and before 6:00 p.m., New York, New
      York time on the second (2nd)
      anniversary of the date of issuance (the “Exercise
      Period”).  Notwithstanding  the
      foregoing,  on any given date, the maximum number of Warrant
      Shares issuable upon exercise of this Warrant on such date shall equal (i)
      half of such number of shares of common stock issued on or prior to such
      date upon conversion of the Convertible Note issued to the holder pursuant
      to the Securities Purchase Agreement, less (ii) such number of
      Warrant  Shares  exercised hereunder prior to such
      date.  In the event that the holder does not convert the
      Convertible Note into shares of common stock, then the holder shall not
      entitled to exercise this Warrant at
all.

            

    

     

    3. Certain Agreements of the
Company.

     

    
      	
                The
      Company hereby covenants and agrees as
follows:

            

    

     

    (a) Shares to
be Fully Paid.  All Warrant
Shares will, upon issuance in accordance with the terms of this Warrant, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.

     

    (b) Reservation
of Shares.  During the
Exercise Period, the Company shall at all times have authorized, and reserved
for the purpose of issuance upon exercise of this Warrant, a suf­ficient
number of shares of Common Stock to provide for the exercise of this
Warrant.

     

    (c) Successors
and Assigns.  This Warrant will
be binding upon any entity succeeding to the Company by merger, consolidation,
or acquisition of all or sub­stantially all the Company’s
assets.

     

    4. Antidilution
Provisions.  

     

    During
the Exercise Period, the Exercise Price and the number of Warrant Shares shall
be subject to adjustment from time to time as provided in this Paragraph
4.

     

    In the
event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up to the nearest
cent.

     

    (a) Adjustment
of Exercise Price and Number of Shares upon Issuance of Common Stock.  Except as
otherwise provided, for a period of one year following the date of issuance, the
Company issues or sells shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Exercise Price on the date of issuance (a “Dilutive Issuance”), then immediately
upon the Dilutive Issuance, the Exercise Price will be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior to the
Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal
to the sum of (x) the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration received by the Company upon such Dilutive Issuance
divided by the Exercise Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock outstanding immediately after the Dilutive
Issuance.   No adjustment to the Exercise Price will be made for
Excepted Issuances as defined in the Converitble Note.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (b) Subdivision
or Combination of Common Stock.  If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced.  If the
Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.

     

    (c) Adjustment
in Number of Shares.  Upon each
adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4,
the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise
Price.  Further, if the number of shares issuable upon conversion of
the Convertible Note (the “Note”) issued to the holder as of the date hereof is
adjusted as a result of an adjustment to the Conversion Price, as defined in the
Note, in accordance with Section 1.2 of the Note, then the number of Warrant
Shares issuable upon exercise of this Warrant shall be adjusted to equal the
number of shares issuable upon conversion of the Note multiplied by
..5.

     

    (d) Consolidation,
Merger or Sale.  In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this Warrant
in lieu of the shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place.  In any such case, the Company will make appropriate provision
to insure that the provisions of this Paragraph 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant.  The Company
will not effect any consolidation, merger or sale or conveyance unless prior to
the consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Paragraph 4 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.

     

    5. Issue
Tax.

     

    
      	
              The
      issuance of certificates for Warrant Shares upon the exercise of this
      Warrant shall be made without charge to the holder of this Warrant or such
      shares for any issuance tax or other costs in respect thereof, provided
      that the Company shall not be required to pay any tax which may be payable
      in respect of any transfer involved in the issuance and delivery of any
      certificate in a name other than the holder of this
    Warrant.

            

    

     

    6. No Rights or Liabilities as
a Shareholder.

     

    
      	
              This
      Warrant shall not entitle the holder hereof to any voting rights or other
      rights as a shareholder of the Company.  No provision of this
      Warrant, in the absence of affirmative action by the holder hereof to
      purchase Warrant Shares, and no mere enumeration herein of the rights or
      privileges of the holder hereof, shall give rise to any liability of such
      holder for the Exercise Price or as a shareholder of the Company, whether
      such liability is asserted by the Company or by creditors of the
      Company.

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    7. Transfer, Exchange, and
Replacement of Warrant.

     

    (a) Restriction
on Transfer.  This Warrant and
the rights granted to the holder hereof are transferable, in whole or in part,
upon surrender of this Warrant, together with a properly executed assignment in
the form attached hereto, at the office or agency of the Company, pro­vided,
however, that any transfer or assignment shall be subject to the conditions set
forth in Paragraph 7(f) hereof and to the applicable provisions of the
Securities Purchase Agreement.  Until due presentment for registration
of transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the con­trary.

     

    (b) Warrant
Exchangeable for Different Denomina­tions.  This Warrant is
exchange­able, upon the surrender hereof by the holder hereof at the office
or agency of the Company, for new Warrants of like tenor representing in the
aggregate the right to purchase the number of shares of Common Stock which may
be purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.

     

    (c) Replacement
of Warrant.  Upon receipt of
evi­dence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft, or destruc­tion, upon delivery of an indemnity agreement
reason­ably satisfactory in form and amount to the Company, or, in the case
of any such mutilation, upon surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a new
Warrant of like tenor.

     

    (d) Cancellation;
Payment of Expenses.  Upon the
surrender of this Warrant in connection with any trans­fer, exchange, or
replacement as provided in this Paragraph 7, this Warrant shall be promptly
canceled by the Company.  The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses (other than legal expenses, if
any, incurred by the holder or transferees) and charges payable in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Paragraph 7.

     

    (e) Register.  The Company shall
maintain, at its principal executive offices (or such other office or agency of
the Company as it may designate by notice to the holder hereof), a register for
this Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name and
address of each transferee and each prior owner of this Warrant.

     

    (f) Exercise
or Transfer Without Registration.  If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the “Securities Act”) and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
“accredited investor” as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an “accredited investor”
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act.  The first holder of this Warrant, by taking and
holding the same, represents to the Company that such holder is acquiring this
Warrant for investment and not with a view to the distribution
thereof.  In no event shall the Holder be permitted to assign the
Warrant unless provided with express written consent by the
Company.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    8. [Intentionally
Omitted]

    9. Notices.

     

    
      	
              All
      notices, requests, and other communications required or permitted to be
      given or delivered hereunder to the holder of this Warrant shall be in
      writing, and shall be personally delivered, or shall be sent by certified
      or registered mail or by recognized overnight mail courier, postage
      prepaid and addressed, to such holder at the address shown for such holder
      on the books of the Company, or at such other address as shall have been
      furnished to the Company by notice from such holder.  All
      notices, requests, and other communications required or permitted to be
      given or delivered hereunder to the Company shall be in writing, and shall
      be personally delivered, or shall be sent by certified or registered mail
      or by recognized overnight mail courier, postage prepaid and addressed, to
      the office of the Company at the address set forth in the Purchase
      Agreement, or at such other address as shall have been furnished to the
      holder of this Warrant by notice from the Company.  Any such
      notice, request, or other communication may be sent by facsimile, but
      shall in such case be subsequently confirmed by a writing personally
      delivered or sent by certified or registered mail or by recognized
      overnight mail courier as provided above.  All notices,
      requests, and other communications shall be deemed to have been given
      either at the time of the receipt thereof by the person entitled to
      re­ceive such notice at the address of such person for purposes of
      this Paragraph 9, or, if mailed by registered or certified mail or with a
      recognized overnight mail courier upon deposit with the United States Post
      Office or such overnight mail courier, if postage is prepaid and the
      mailing is properly addressed, as the case may
  be.

            

    

     

    10. Governing
Law.

     

    
      	
              THIS
      WARRANT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
      THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
      PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
      CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE
      EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
      YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT, THE
      AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
      CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE
      OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
      PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
      UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT
      EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
      PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO
      SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH
      PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
      PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
      BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.  THE
      PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS WARRANT
      SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES,
      INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
      DISPUTE.

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    11. Miscellaneous.

     

    (a) Amendments.  This Warrant and
any provision hereof may only be amended by an instrument in writing signed by
the Company and the holder hereof.

     

    (b) Descriptive
Headings.  The descriptive
headings of the several paragraphs of this Warrant are in­serted for
purposes of reference only, and shall not affect the meaning or construction of
any of the provisions hereof.

     

    (c) Remedies.  The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holder, by vitiating the intent and purpose of the
transaction contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Warrant will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Warrant, that the holder shall
be entitled, in addition to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Warrant and to
enforce specifically the terms and provisions thereof, without the necessity of
showing economic loss and without any bond or other security being
required.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

     

     

     

     

     

     

    
      
         

      

      
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    IN WITNESS WHEREOF, the
Company has caused this Warrant to be signed by its duly authorized
officer.

     

     

     

     

    
      
        	 	BONANZA OIL
      & GAS, INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	William
      Wiseman	 
	 	 	Chief
      Executive Officer	 
	 	 	 	 

      

    

     

    

     

    

     

    Dated as
of May __, 2008

     

     

     

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    FORM
OF EXERCISE AGREEMENT

     

    

     

    Dated:  ________ __,
20__

     

    

     

    To: ______________________

     

    

     

    

     

    The
undersigned, pursuant to the provisions set forth in the within Warrant, hereby
agrees to purchase ________ shares of Common Stock covered by such Warrant, and
makes pay­ment herewith in full therefor at the price per share provided by
such Warrant in cash or by certified or official bank check in the amount of
equal to $_________.  Please issue a certificate or certifi­cates
for such shares of Common Stock in the name of and pay any cash for any
fractional share to:

     

    

     

    Name:  ______________________________

    

    

    Signature:

    Address:____________________________

    _____________________________

    

    

    
      	
               
      

            	
              Note:

            	
              The
      above signature should correspond exactly with the name on the face of the
      within Warrant, if applicable.

            

    

    

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    FORM
OF ASSIGNMENT

     

    

     

    

     

    FOR VALUE RECEIVED, the
undersigned hereby sells, assigns, and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares of
Common Stock covered thereby set forth hereinbelow, to:

    

     

    Name of
Assignee                                                                Address                                                                No of
Shares

     

    

     

    

     

    

     

    , and
hereby irrevocably constitutes and appoints ___________________________________
as agent and attorney-in-fact to trans­fer said Warrant on the books of the
within-named corporation, with full power of substitution in the
premises.

     

    

     

    Dated:                      ________
__, 20__

     

    

     

    In the
presence
of:                                                                        
______________________________

     

    Name:______________________________

    

     

    Signature:_________________________

    Title of
Signing Officer or Agent (if any):

    ______________________________

    Address:   
______________________________

    ______________________________

    

    

    
      	
               
      

            	
              Note:

            	
              The
      above signature should correspond exactly with the name on the face of the
      within Warrant, if applicable.

            

    

     

     

     

    
9pei_8k-ex1001.htm

    EXHIBIT
10.1

     

    FORBEARANCE
AGREEMENT AND RELEASE

     

    This
FORBEARANCE AGREEMENT AND
RELEASE (this “Agreement”)
is hereby entered into as of May 12, 2008 (the “Effective
Date”) by and among KINERGY MARKETING, LLC, an
Oregon limited liability company (“Borrower”),
with its principal place of business at 5711 N. West Avenue, Fresno, California
93711; COMERICA BANK, a
Texas banking association (“Bank”),
with its office at 333 W. Santa Clara Street, San Jose, California 95113; and
PACIFIC ETHANOL, INC., a
Delaware corporation “Guarantor”)
with an address at 5711 N. West Avenue, Fresno, California 93711.

     

    RECITALS

     

    A.           Borrower
and Bank are parties to that certain Loan and Security Agreement (Accounts and
Inventory) dated August 17, 2007 (as amended, the “Loan
Agreement”) pursuant to which Bank made available to Borrower a Twenty
Five Million and 00/100 Dollars ($25,000,000.00) revolving line of credit (the
“Revolving
Facility”).

     

    B.           In
order to induce Bank to enter into the Loan Agreement and other Loan Documents
(as defined in the Loan Agreement) Guarantor executed that certain Guaranty
dated August 17, 2007 (as amended, the “Guaranty”)
in favor of Bank whereby Guarantor guaranteed Borrower’s obligations under the
Loan Documents.

     

    C.           Without
giving effect to the forbearance contemplated by this Agreement, there is
presently due and owing under the Revolving Facility to Bank, as of May 12,
2008, the principal amount of Fifteen Million Four Hundred Sixty Three Thousand
Two Hundred Eleven and 72/100 Dollars ($15,463,211.72); plus accrued but
unpaid interest, as of May 12, 2008; plus certain costs
and expenses of Bank, including attorneys’ fees.  Interest and such
costs and expenses continue to accrue.

     

    D.           Borrower
has acknowledged and hereby further acknowledges that the following Events of
Default (the “Existing
Defaults”) exist under the Loan Agreement with respect to the financial
statements for the fiscal year of Borrower ended on December 31, 2007, and for
the fiscal quarter of Borrower ending March 31, 2008 which were delivered to
Bank in accordance with Section 7.4.3 of the Loan Agreement: (i) Borrower did
not deliver a Compliance Certificate in accordance with Section 7.4.6 of the
Loan Agreement; (ii) Borrower has failed to maintain its Tangible Effective Net
Worth in an amount equal to at least Twelve Million and 00/100 Dollars
($12,000,000.00) in accordance with Section 9.3 of the Loan Agreement; and (iii)
Borrower has failed to maintain its Debt to Tangible Effective Net Worth in an
amount less than 3.50 to 1.00 in accordance with Section 9.4 of the Loan
Agreement.

     

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

     

    E.           Because
of the Existing Defaults, without giving effect to the forbearance contemplated
by this Agreement, all sums outstanding under the Loan Agreement are due and
payable, and Bank has full legal right to exercise its default rights and
remedies under the Loan Agreement.  Such remedies include, but are not
limited to, foreclosure on Bank’s collateral.

     

    F.           Borrower
has requested that Bank forbear for a period of time from exercising its rights
and remedies under the Loan Documents.

     

    G.           Bank
will forbear from exercising its rights and remedies under the Loan Documents,
on the terms and conditions set forth herein.

     

    AGREEMENT

     

    NOW, THEREFORE, for good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereby agree as set forth below.

     

    1.           Incorporation of
Recitals.  Each of the above Recitals is hereby incorporated
herein by this reference.

     

    2.           Incorporation of
the Loan Documents; Definitions.  The Loan Agreement and other
Loan Documents, together with the other documents and instruments executed
pursuant to this Agreement, are incorporated herein by this
reference.  Capitalized terms not otherwise defined herein shall have
the meanings given such terms in the Loan Agreement, as applicable.

     

    3.           Ratification of
Indebtedness.  Borrower ratifies and reaffirms the
Indebtedness, which Indebtedness under the Loan Agreement is currently
outstanding in the amount set forth in Recital C, without
setoff, defense, or counterclaim.

     

    4.           Conditions
Precedent to Bank’s Indebtedness.  This Agreement shall not be
effective as against Bank unless and until each of the following conditions
(each a “Condition
Precedent” and collectively the “Conditions
Precedent”) shall have been satisfied in Bank’s sole discretion or waived
by Bank, for whose sole benefit such Conditions Precedent exist:

     

    4.1           Execution and
Delivery of this Agreement.  Borrower shall have duly executed
and delivered this Agreement and any other documents required hereby, all in
form and content satisfactory to Bank.

     

    4.2           Guarantor’s
Consent.  Guarantor shall have executed the consent at the end
of this Agreement.

     

    4.3           Payment of Bank’s
Attorneys’ Fees and Costs.  Borrower shall have paid the Bank
all of Bank’s costs and expenses (including appraisal fees and attorneys’ fees)
incurred in connection with the negotiation, preparation and execution of this
Agreement, the review by its counsel of the Loan Documents, and satisfaction of
the Conditions Precedent.

     

    
      
        
        

      

      
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    4.4           Payment of
Accrued Interest.  Borrower shall have paid to Bank all accrued
and unpaid interest through May 1, 2008 on the Indebtedness.

     

    4.5           Further
Assurances.  Bank shall have received such other documents and
instruments as Bank may reasonably require in order to put into effect the terms
of this Agreement.

     

    5.           Terms and
Conditions of Forbearance.  Subject to the satisfaction of the
Conditions Precedent, and subject to the additional terms and conditions herein,
during the period (the “Forbearance
Period”) commencing on the Effective Date and ending on the earlier to
occur of (a) August 15, 2008; or (b) the date that any Forbearance Default
(defined below) occurs, Bank will forbear in the exercise of its rights and
remedies under the Loan Documents and applicable law with respect to the
Existing Defaults.  As of the Effective Date, so long as a Forbearance
Default has not occurred and is continuing, the outstanding principal amount
under the Revolving Facility shall not be due and payable during the Forbearance
Period.

     

    5.1           Forbearance.  Without
limiting the generality of the foregoing, during the Forbearance Period, Bank
will not (a) accelerate the maturity of the Indebtedness or initiate proceedings
to collect the Indebtedness; (b) file or join filing any involuntary petition in
bankruptcy with respect to Borrower or Guarantor, or otherwise initiate or
participate in similar insolvency reorganization, or moratorium proceeding for
the benefit of creditors of Borrower or Guarantor; (c) repossess or sell,
through judicial proceedings or otherwise, any of the Collateral; provided that Bank shall
continue to collect the Accounts of Borrower and apply the proceeds thereof to
the Indebtedness as provided in the Loan Agreement; or (d) initiate proceedings
to enforce the Guaranty.

     

    5.2           Reservation of
Rights.  Bank reserves its rights to declare a default and/or
an Event of Default and/or to enforce its rights and remedies with respect to
defaults other than the Existing Defaults, without notice to Borrower or
Guarantor under the Loan Documents during the Forbearance Period.

     

    5.3           Interest.  During
the Forbearance Period, interest shall accrue on the Indebtedness at a rate per
annum equal to the Base Rate; plus two and one-half
percent (2.50%).  Borrower shall not be entitled to LIBOR Advances
during the Forbearance Period or at any time thereafter.  Borrower
shall continue to make payments of interest in accordance with the terms of the
Loan Agreement.  Payment of interest shall be by automatic debit to
Borrower’s deposit accounts.  Upon a Forbearance Default, the
Indebtedness will accrue interest at a rate per annum equal to the Base Rate;
plus seven
percent (7.00%).

     

    5.4           Advances.  During
the Forbearance Period, so long as a Forbearance Default has not occurred and is
continuing, Bank agrees to make Base Rate Advances to Borrower in amounts
requested by Borrower up to an aggregate outstanding principal amount equal to
the Revolving Facility Commitment Limit.  Each Advance shall be based
on the submission by Borrower of a Borrowing Base
Certificate.  Borrower shall not be entitled to LIBOR Advances during
the Forbearance Period or at any time thereafter.

     

    
      
        
        

      

      
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    6.           Amendments to the
Loan Agreement.  In order to induce Bank to enter into this
Agreement, and as separate bargained-for consideration, Borrower agrees to the
following amendments to the Loan Agreement:

     

    6.1           Amendment to
Section 1.10 of the Loan Agreement.  Section 1.10 of the Loan
Agreement is hereby amended by deleting it in its entirety and replacing it with
the following:

     

    1.10           “Borrowing
Base” means an amount equal to the sum of: (a) eighty percent (80%) of
the Net Amount of Eligible Accounts; plus (b) seventy
percent (70%) of the Value of Eligible In Storage Inventory; provided that the aggregate
amount of Advances made under this Subsection 1.10(b) shall not exceed Four
Million and 00/100 Dollars ($4,000,000.00); plus (c) seventy
percent (70%) of the Value of Eligible In Transit Inventory; provided that the aggregate
amount of Advances made under this Subsection 1.10(c) shall not exceed Three
Million Six Hundred Thousand and 00/100 Dollars ($3,600,000.00).”

     

    6.2           Amendment to
Section 1.17 of the Loan Agreement.  Section 1.17 of the Loan
Agreement is hereby amended by deleting it in its entirety and replacing it with
the following:

     

    “1.17         “Credit
Limit” shall mean Seventeen Million Five Hundred Thousand and 00/100
Dollars ($17,500,000.00).”

     

    6.3           Amendment to
Section 1.20 of the Loan Agreement.  Section 1.20 of the Loan
Agreement is hereby amended by deleting the term “ninety (90)” throughout this
Section and replacing it with the term “forty-five (45)”.

     

    6.4           Amendment to
Section 2.4 of the Loan Agreement.  Section 2.4 of the Loan
Agreement is hereby amended by deleting it in its entirety and replacing it with
the following:

     

    “2.4           Interest.  Borrower
shall pay interest to Bank on the outstanding and unpaid principal amount of the
Revolving Facility at a floating rate per annum equal to the Base Rate; plus two and one-half
percent (2.50%).  Borrower shall not be entitled to any LIBOR
Advances.

     

    
      
        
        

      

      
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    2.4.1          Adjusted
Rate.  Any change in the interest rate resulting from a change
in the Base Rate shall be effective as of the opening of business on the day on
which such change in the Base Rate becomes effective.

     

    2.4.2          Default
Rate.  From and after an Event of Default, Advances under the
Revolving Facility shall bear interest at a rate equal to three percentage
points (3%) more than the interest rate that would have been applicable
hereunder.  Anything herein to the contrary notwithstanding, interest
at the default rate shall be due and payable on demand but shall accrue from the
Event of Default until all Indebtedness is paid in full.

     

    2.4.4          Calculation of
Interest.  All interest calculations shall be on a basis of a
three hundred and sixty (360)-day year for the actual days
elapsed.  Interest paid for any partial month shall be prorated based
on a thirty (30)-day month and the actual number of day elapsed.”

     

    6.5           Amendment to
Section 6.8.1 of the Loan
Agreement.  Section 6.8.1 of the Loan Agreement is hereby
amended by deleting it in its entirety and replacing it with the
following:

     

    “6.8.1        Locations.  Schedule
6.8.1 is a true and correct listing showing all places where Eligible Inventory
is located (except for Eligible Inventory in transit), including, without
limitation, facilities leased and operated by Borrower and locations neither
owned nor leased by Borrower.  Such list indicates whether the
premises are those of warehouseman or other party.  Borrower shall
provide Bank, on a weekly basis, any change in the locations set forth in
Schedule 6.8.1 (and Borrower shall have the right to update such Schedule in
connection with the provision of such notice).”

     

    6.6           Amendment to
Section 7.4 of the Loan Agreement.  Section 7.4 of the Loan
Agreement is hereby amended by adding new Section 7.4.7 as follows:

     

    “7.4.7        Borrower’s
Monthly Financial Statements.  As soon as practicable, but in
any event within twenty (20) days after the end of each month in each fiscal
year of Borrower, unaudited monthly financial statements of Borrower for such
month prepared in accordance with GAAP, together with a certification by the
principal financial or accounting officer of Borrower that the information
contained in such financial statements fairly presents, in all material
respects, the financial position of Borrower for the period then ending, subject
to changes resulting from audit and normal year end adjustments.”

     

    
      
        
        

      

      
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    6.7           Amendment to
Section 10 of the Loan Agreement.  Section 10 of the Loan
Agreement is hereby amended by adding new Section 10.13 as follows:

     

    “10.7         Guarantor and
Affiliate Other Agreements.  Guarantor or any Affiliate shall
fail to make any payment when due under the terms of any bond, debenture, note
or other evidence of Debt to be paid by such Person and such failure shall
continue beyond any period of grace provided with respect thereto, or shall
default in the observance or performance of any other agreement, term or
condition contained in any such bond, debenture, note or other evidence of Debt,
and the effect of such failure or default is to cause, or permit the holder or
holders thereof to cause Debt in an aggregate amount of One Million and 00/100
Dollars ($1,000,000.00) or more to become due prior to its stated date of
maturity.”

     

    7.           Representations
and Warranties of Borrower.  Borrower hereby represents and
warrants to Bank as follows:

     

    7.1           Recitals.  The
Recitals in this Agreement are true and correct.

     

    7.2           Formation and
Good Standing. Borrower is a limited liability company duly formed,
validly existing, and in good standing under the laws of the jurisdiction of its
formation; has the limited liability company power and authority to own its
assets and to transact the business in which it is now engaged or proposed to be
engaged in; and is duly qualified as a foreign corporation and in good standing
under the laws of each other jurisdiction in which such qualification is
required.

     

    7.3           Power and
Authority.  The execution, delivery, and performance by
Borrower of this Agreement has been duly authorized by all necessary limited
liability company action and does not and will not (a) require any consent or
approval of the members of Borrower; (b) contravene Borrower’s articles of
organization or operating agreement; (c) violate any provision of any law, rule,
regulation (including, without limitation, Regulations U and X of the Board of
Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination, or award presently in effect having applicability to
Borrower; (d) result in a breach of or constitute a default under indenture or
loan or credit agreement or any other agreement, lease, or instrument to which
Borrower is a party or by which it or its properties may be bound or affected;
(e) result in, or require, the creation or imposition of any Lien, upon or with
respect to any of the properties now owned or hereafter acquired by Borrower;
and (f) cause Borrower to be in default under any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination, or award or any such
indenture, agreement, lease, or instrument.

     

    
      
        
        

      

      
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    7.4           Legally
Enforceable Agreement.  This Agreement is the legal, valid, and
binding obligations of Borrower, enforceable against Borrower in accordance with
its respective terms, except to the extent that such enforcement may be limited
by applicable bankruptcy, insolvency, and other similar laws affecting
creditors’ rights generally.

     

    7.5           Indebtedness
Absolute.  The
obligation of Borrower to repay the Indebtedness is absolute and unconditional,
and there exists no right of setoff or recoupment, counterclaim or defense of
any nature whatsoever to payment of the Indebtedness.

     

    7.6           Insurance.  Borrower
and Guarantor represent and warrant that all insurance required by the Loan
Agreement is in effect, and Borrower shall deliver to Bank, within ten (10) days
of the Effective Date, evidence of such insurance, including but not limited to
copies of the insurance policies showing Bank as loss payee with coverage in an
amount acceptable to Bank.

     

    8.           Covenants.  Unless
Bank otherwise consents in writing, Borrower and Guarantor agree that during the
Forbearance Period:

     

    8.1           Financial
Covenants.  Sections 9.3 and 9.4 of the Loan Agreement are
hereby amended as follows, such amendments to be effective only during the
Forbearance Period:

     

    (a)           Tangible
Effective Net Worth.  Borrower shall not permit Tangible
Effective Net Worth to be less than the sum of Two Million Nine Hundred Thousand
and 00/100 Dollars ($2,900,000.00).

     

    (b)           Leverage
Ratio.  Borrower shall not permit the ratio of Debt to Tangible
Effective Net Worth to be greater than 9.00 to 1.00.

     

    8.2           Daily A/R and A/P
Agings.  Commencing May 16, 2008, Borrower shall execute and
deliver to Bank, on a daily basis, by 10:00am of each Business Day, (a) a
detailed aging of Accounts by total, a summary of aging of Accounts by customer,
and a reconciliation statement; and (b) a detailed aging of accounts
payable.

     

    8.3           Daily Inventory
Reports.  Commencing May 16, 2008, Borrower shall execute and
deliver to Bank, on a daily basis, by 10:00am of each Business Day, Bank’s form
of inventory report specifying Borrower’s cost and the resale price of
Borrower’s Inventory and such other information as Bank may reasonably
request.

     

    
      
        
        

      

      
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    8.4           Daily Affiliate
A/R and A/P Agings.  Commencing May 16, 2008, Borrower shall
execute and deliver to Bank, on a daily basis, by 10:00am of each Business Day,
Borrower’s intercompany balance reports.

     

    8.5           Refinance.  On
or before June 30, 2008, Borrower shall provide Bank with a copy of an
indicative term sheet submitted by a commercial bank or other commercial finance
source which has a combined capital and surplus in excess of $250,000,000
(including, for example, WestLB AG New York Branch or Wells Fargo Bank, N.A.) to
Guarantor, Borrower or any of its Affiliates containing a summary of the
principal terms and conditions offered by such bank or institution with respect
to the refinancing of the Indebtedness under the Loan Agreement.

     

    8.6           Affiliate
Receivables.  On each of June 15, 2008 and July 15, 2008,
Borrower shall reduce its gross Affiliate receivables by an amount equal to Five
Hundred Thousand and 00/100 Dollars ($500,000.00).

     

    8.7           Operating
Accounts.  Borrower covenants and agrees that it will not
divert the cash proceeds of any Collateral, and Borrower shall remit all cash
proceeds of Collateral to its operating accounts at the
Bank.  Borrower hereby agrees that all amounts received by Bank in the
operating accounts will be applied in accordance with the Loan
Agreement.

     

    8.8           Net
Income.  Borrower’s cumulative net loss at any time during the
period commencing on April 1, 2008 through August 15, 2008 shall not be greater
than One Million and 00/100 Dollars ($1,000,000.00) for such period (it being
acknowledged that “net loss” shall be calculated to exclude any non-cash gain or
loss attributable to the mark-to-market movement in the valuation of hedge
agreements or other derivative instruments).

     

    9.           Releases.  The
parties have agreed to the terms set forth below with respect to
releases.

     

    9.1           Release.  Borrower,
Guarantor, and their respective former and present employees, partners,
stockholders, directors, officers, successors, assignees, agents, and attorneys,
hereby absolutely discharge and release Bank and Bank’s former and present
employees, partners, stockholders, directors, officers, successors, assignees,
agents and attorneys from any and all liabilities, causes of action, claims,
which do or may exist, whether known or unknown, suspected, or unsuspected
arising out of or in any way relating to either the, this Agreement and/or the
Loan Documents (as modified hereby and by any documents executed in connection
herewith) between Bank on the one hand and Borrower, and Guarantor on the other
hand as of the date hereof (the “Released
Matters”).  Nothing in this Section 9.1 shall be construed as affecting or limiting in any
way the parties’ express contractual obligations to each other hereunder or
under the Loan Documents (as modified hereby and by any documents executed in
connection herewith).

     

    
      
        
        

      

      
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    9.2           No
Actions.  Borrower and Guarantor covenant and agree that
neither they nor their respective present or former agents, employees or
assignees; will hereafter commence, maintain or prosecute any action at law or
otherwise, or assert any claim against Bank or Bank’s present or former officers,
directors, agents, employees, and attorneys for damages or loss of any kind or
amount arising out of or related in any way to the Released
Matters.

     

    9.3           Acknowledgment.  Borrower
and Guarantor hereby acknowledge that either of such parties may hereafter
discover facts different from or in addition to those now known or believed to
be true, and agree that this Agreement shall remain in full force and effect,
notwithstanding the existence of any such different or additional
facts.  Borrower and Guarantor hereby waive any and all rights which
any such party has or may have under the provisions of Section 1542 of the
California Civil Code as now worded and as hereafter amended, which section
presently reads as follows:

     

    “A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.”

     

    10.           Defaults.  Each
of the following shall constitute a “Forbearance
Default” hereunder:

     

    10.1           Event of
Default.  The existence of any Event of Default (other than the
Existing Defaults) under the Loan Agreement or any other Loan
Document.

     

    10.2           Covenants.  Borrower
or Guarantor fails to keep or perform any of the covenants or agreements
contained in this Agreement (other than those described in Sections 8.2,
8.3 and
8.4).

     

    10.3           Certain
Covenants.  Borrower or Guarantor fails to keep or perform any
of the covenants or agreements contained in Sections 8.2,
8.3 and
8.4
of this Agreement or Section 7.4.7 of the Loan Agreement, and such default is
not cured within one (1) day after Borrower receives notice thereof or any
officer of Borrower becomes aware thereof.

     

    10.4           Representation
and Warranties.  Any representation or warranty of Borrower or
Guarantor herein is false, misleading or incorrect in any material
respect.

     

    11.           Remedies.  If
a Forbearance Default occurs or exists, Bank may declare this Agreement to be
terminated.  Upon such termination, Bank shall be relieved of its
obligations set forth herein and, accordingly, Bank shall be free to declare any
and all of the Indebtedness and Indebtedness to be immediately due and payable,
and Bank may proceed to enforce its rights under each of the Borrower Loan
Documents, the Guarantor Loan Documents, the Guaranty, and applicable
law.

     

    
      
        
        

      

      
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    12.           Legal
Effect.  Except as specifically provided by this Agreement and
any documents executed in connection herewith, all of the terms and conditions
of the Loan Documents are and shall remain in full force and effect in
accordance with their respective terms, and this Agreement shall not be
construed to: (a) impair the validity, perfection or priority of any lien or
security interest securing the Indebtedness; (b) waive or impair any rights,
power or remedies of Bank under the Loan Agreement or any other Loan Document
upon termination of the Forbearance Period, with respect to the Existing
Defaults or otherwise; or (c) constitute an agreement by Bank or require Bank to
extend the Forbearance Period, or grant additional forbearance periods, or
extend the term of the Loan Agreement or the time for payment of any
Indebtedness.

     

    13.           Forbearance
Fee.  Borrower shall pay to Bank as a forbearance fee the
amount of One Hundred Thousand and 00/100 Dollars ($100,000.00), which fee shall
be fully earned as of and payable on the Effective Date.

     

    14.           Inconsistency.  In
the event of any inconsistency between the terms of this Agreement and any other
Loan Document, this Agreement shall govern.

     

    15.           Consultation with
Counsel.  Borrower acknowledges that it has consulted with
counsel and with such other experts and advisors as it has deemed necessary in
connection with the negotiation, execution, and delivery of this
Agreement.

     

    16.           General
Terms. The parties have agreed to the general provisions set forth
below.

     

    16.1           Disposition of
Collateral.  Borrower and Guarantor hereby waive, to the extent
permitted by applicable law, any and all of their rights under Article 9 of the
Uniform Commercial Code, including but not limited to, (a) notification of the
time and place of any public sale of the Collateral; (b) notification of the
time after which any private sale or other intended disposition of the
Collateral is to be made; (c) any rights relating to the compulsory disposition
of the Collateral; and (d) any right to redeem the Collateral.

     

    16.2           Appointment of
Receiver.  Borrower and Guarantor agree that upon termination
of the Forbearance Period, Bank shall be entitled to appointment of a receiver
for the Collateral.

     

    16.3           Effectiveness.  The
Loan Documents, as modified herein, are hereby reaffirmed, ratified and
republished (including, without
limitation, the grant of security interests contained therein) and Borrower
shall comply with all of the terms and conditions thereof.

     

    
      
        
        

      

      
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    16.4           Integration.
This Agreement, any documents executed in connection herewith and the Loan
Documents (as modified hereby and by any documents executed in connection
herewith) contain the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements, understandings,
offers and negotiations, oral or written, with respect thereto.

     

    16.5           Successors and
Assigns.  This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties; provided, however, that neither this
Agreement nor any rights hereunder may be assigned by Borrower or
Guarantor.  Bank shall have the right without the consent of or notice
to Borrower or Guarantor to sell, transfer, negotiate, or grant participation in
all or any part of, or any interest in, Bank’s obligations, rights and benefits
hereunder.

     

    16.6           Indemnification.  Borrower
and Guarantor shall each jointly and severally defend, indemnify and hold
harmless Bank and its officers, employees, and agents against:  (a)
all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this Agreement;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank, Borrower and/or Guarantor whether under this
Agreement, or otherwise (including without limitation reasonable attorneys’ fees
and expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.

     

    16.7           Severability of
Provisions.  In the event any one or more of the provisions
contained in this Agreement is held to be invalid, illegal or unenforceable in
any respect, then such provision shall be ineffective only to the extent of such
prohibition or invalidity, and the validity, legality, and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.

     

    16.8           Amendments.  Neither
this Agreement nor any provisions hereof may be changed, waived, discharged or
terminated, nor may any consent to the departure from the terms hereof be given,
orally (even if supported by new consideration), but only by an instrument in
writing signed by all parties to this Agreement.  Any waiver or
consent so given shall be effective only in the specific instance and for the
specific purpose for which given.

     

    16.9           Waiver.  No
failure to exercise and no delay in exercising any right, power, or remedy
hereunder shall impair any right, power, or remedy which Bank may have, nor
shall any such delay be construed to be a waiver of any of such rights, powers,
or remedies, or any acquiescence in any breach or default hereunder; nor shall
any waiver by Bank of any breach or default by Borrower hereunder be deemed a
waiver of any default or breach subsequently occurring.  All rights
and remedies granted to Bank hereunder shall remain in full force and effect
notwithstanding any single or partial exercise of, or any discontinuance of
action begun to enforce, any such right or remedy.  The rights and
remedies specified herein are cumulative and not exclusive of each other or of
any rights or remedies which Bank would otherwise have.  Any waiver,
permit, consent or approval by Bank of any breach or default hereunder must be
in writing and shall be effective only to the extent set forth in such writing
and only as to that specific instance.

     

    
      
        
        

      

      
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    16.10                      Interpretation.
This Agreement and all agreements relating to the subject matter hereof are the
product of negotiation and preparation by and among each party and its
respective attorneys, and shall be construed accordingly.  The parties
waive the provisions of California Civil Code §1654.

     

    16.11                      Survival.  All
covenants, representations and warranties, waivers and releases of Borrower and
Guarantor made in this Agreement shall survive the termination of the
Forbearance Period and continue in full force and effect so long as any
Indebtedness remains outstanding.  The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run.

     

    16.12                      Counterparts.  This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if all signatures were upon the same
instrument.  Delivery of an executed counterpart of the signature page
to this Agreement by telefacsimile shall be effective as delivery of a manually
executed counterpart of this Agreement, and any party delivering such an
executed counterpart of the signature page to this Agreement by telefacsimile to
any other party shall thereafter also promptly deliver a manually executed
counterpart of this Agreement to such other party; provided; however, that the
failure to deliver such manually executed counterpart shall not affect the
validity, enforceability, or binding effect of this Agreement.

     

    16.13                      Attorneys’ Fees
and Costs of Enforcement. In the event that any action is required to be
taken by Bank to enforce or interpret its rights under this Agreement and any
documents executed in connection therewith or the Loan Documents, whether or not
suit is brought, or in the event of any dispute arising from this Agreement and
any document executed in connection therewith or the Loan Documents, Borrower
and Guarantor jointly and severally shall pay to Bank the attorneys’ fees and
costs incurred by Bank in connection therewith, including, without limitation,
any attorneys’ fees and costs incurred in connection with any bankruptcy
proceeding of Borrower, including, without limitation, any motion for relief
from stay or dispute over or negotiation concerning cash collateral or
nondischargeability, and any expert witness fees.

     

    16.14                      Information to
Third Parties.  Borrower and Guarantor agree that Bank may
provide information relating to this Agreement and/or the Loan Documents and/or
relating to such parties to Bank’s parent, affiliates, subsidiaries and service
providers in the ordinary course of Bank’s business.

     

    16.15                      Notices.
Unless otherwise provided in this Agreement, all notices or demands relating to
this Agreement or any other agreement entered into in connection herewith shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered, sent by certified mail or by facsimile to Bank or Borrower
at their respective addresses set forth in the Loan Agreement.

     

    
      
        
        

      

      
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    17.           WAIVER OF JURY
TRIAL.  BANK, GUARANTOR AND BORROWER ACKNOWLEDGE AND AGREE THAT
THE TIME AND EXPENSE REQUIRED FOR TRIAL BY JURY EXCEED THE TIME AND EXPENSE
REQUIRED FOR A BENCH TRIAL AND HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY.

     

    18.           REFERENCE
PROVISION.  In the event the Jury Trial Waiver set forth above
is not enforceable, the parties elect to proceed under this Judicial Reference
Provision.

     

    18.1           Mechanics.

     

    (a)           With
the exception of the items specified in Section 18.1(b), below, any
controversy, dispute or claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement or any other
document, instrument or agreement between the undersigned parties (collectively
in this Section, the “Comerica
Documents”), will be resolved by a reference proceeding in California in
accordance with the provisions of Sections 638 et. seq. of the California Code
of Civil Procedure (“CCP”),
or their successor sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to the reference
proceeding.  Except as otherwise provided in the Comerica Documents,
venue for the reference proceeding will be in the state or federal court in the
county or district where the real property involved in the action, if any, is
located or in the state or federal court in the county or district where venue
is otherwise appropriate under applicable law (the “Court”).

     

    (b)           The
matters that shall not be subject to a reference are the following: (a)
foreclosure of any security interests in real or personal property; (b) exercise
of self-help remedies (including, without limitation, set-off); (c) appointment
of a receiver; and (d) temporary, provisional or ancillary remedies (including,
without limitation, writs of attachment, writs of possession, temporary
restraining orders or preliminary injunctions).  This reference
provision does not limit the right of any party to exercise or oppose any of the
rights and remedies described in clauses (a) and (b) or to seek or oppose from a
court of competent jurisdiction any of the items described in clauses (c) and
(d).  The exercise of, or opposition to, any of those items does not
waive the right of any party to a reference pursuant to this reference provision
as provided herein.

     

    (c)           The
referee shall be a retired judge or justice selected by mutual written agreement
of the parties.  If the parties do not agree within ten (10) days of a
written request to do so by any party, then, upon request of any party, the
referee shall be selected by the Presiding Judge of the Court (or his or her
representative).  A request for appointment of a referee may be heard
on an ex parte or expedited basis, and the parties agree that irreparable harm
would result if ex parte relief is not granted.  Pursuant to CCP §
170.6, each party shall have one peremptory challenge to the referee selected by
the Presiding Judge of the Court (or his or her representative).

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    (d)           The
parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested, subject to change in
the time periods specified herein for good cause shown, to (i) set the matter
for a status and trial-setting conference within fifteen (15) days after the
date of selection of the referee; (ii) if practicable, try all issues of law or
fact within one hundred twenty (120) days after the date of the conference; and
(iii) report a statement of decision within twenty (20) days after the matter
has been submitted for decision.

     

    (e)           The
referee will have power to expand or limit the amount and duration of
discovery.  The referee may set or extend discovery deadlines or
cutoffs for good cause, including a party’s failure to provide requested
discovery for any reason whatsoever.  Unless otherwise ordered based
upon good cause shown, no party shall be entitled to “priority” in conducting
discovery, depositions may be taken by either party upon seven (7) days written
notice, and all other discovery shall be responded to within fifteen (15) days
after service.  All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose decision shall
be final and binding.

     

    18.2           Procedures.  Except
as expressly set forth herein, the referee shall determine the manner in which
the reference proceeding is conducted including the time and place of hearings,
the order of presentation of evidence, and all other questions that arise with
respect to the course of the reference proceeding.  All proceedings
and hearings conducted before the referee, except for trial, shall be conducted
without a court reporter, except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript.  The party
making such a request shall have the obligation to arrange for and pay the court
reporter.  Subject to the referee’s power to award costs to the
prevailing party, the parties will equally share the cost of the referee and the
court reporter at trial.

     

    18.3           Application of
Law.  The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California.  The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference
proceeding.  The referee shall be empowered to enter equitable as well
as legal relief, enter equitable orders that will be binding on the parties and
rule on any motion which would be authorized in a court proceeding, including
without limitation motions for summary judgment or summary
adjudication.  The referee shall issue a decision at the close of the
reference proceeding which disposes of all claims of the parties that are the
subject of the reference.  Pursuant to CCP § 644, such decision shall
be entered by the Court as a judgment or an order in the same manner as if the
action had been tried by the Court and any such decision will be final, binding
and conclusive.  The parties reserve the right to appeal from the
final judgment or order or from any appealable decision or order entered by the
referee.  The parties reserve the right to findings of fact,
conclusions of laws, a written statement of decision, and the right to move for
a new trial or a different judgment, which new trial, if granted, is also to be
a reference proceeding under this provision.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    18.4           Repeal.  If
the enabling legislation which provides for appointment of a referee is repealed
(and no successor statute is enacted), any dispute between the parties that
would otherwise be determined by reference procedure will be resolved and
determined by arbitration.  The arbitration will be conducted by a
retired judge or justice, in accordance with the California Arbitration Act
§1280 through §1294.2 of the CCP as amended from time to time.  The
limitations with respect to discovery set forth above shall apply to any such
arbitration proceeding.

     

    18.5           THE
PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED
UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY.
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS,
HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL
BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY
CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY
RELATED TO, THIS AGREEMENT OR THE OTHER COMERICA DOCUMENTS.

     

    18.6           In
the event that Bank elects to waive any rights or remedies hereunder, or
compliance with any of the terms hereof, or delays or fails to pursue or enforce
any term, such waiver, delay or failure to pursue or enforce shall only be
effective with respect to that single act and shall not be construed to affect
any subsequent transactions or Bank’s right to later pursue such rights and
remedies.

     

    Signature
page follows

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the
parties hereto have agreed to the terms of this Forbearance Agreement and
Release as of the Effective Date.

    
 

    
      	 	
              KINERGY
      MARKETING, LLC

               

               

              /s/ NEIL
      KOEHLER                                                         
      

              By:           Neil
      Koehler

              Its:           President
      and Chief Executive Officer

               

               

              COMERICA
      BANK

               

               

              /s/ DOUGLAS
      WEBER                                                     

              By:           Douglas
      Weber

              Its:           Senior
      Vice President – Western
Market

            

    

     

     

    -16-

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