Document:

paceth_8k-ex1003.htm

    Exhibit 10.3

     

    
      Pacific
Ethanol, Inc.

      400
Capitol Mall, Suite 2060

      Sacramento,
CA  95814

      

      May 22,
2008

      

      Neil M.
Koehler

      Bill
Jones

      Paul P.
Koehler

      Thomas D.
Koehler

      c/o
Pacific Ethanol, Inc.

      400
Capitol Mall, Suite 2060

      Sacramento,
CA  95814

       

      
        	
                 
      

              	
                Re:

              	
                Dividend
      Rights

              

      

       

      Gentlemen:

       

      This side
letter agreement (the “Letter
Agreement”) is provided with reference to that certain Securities
Purchase Agreement (the “Securities Purchase
Agreement”) dated May 20, 2008, by and between Pacific Ethanol, Inc., a
Delaware corporation (the “Company”), Neil M. Koehler, Bill
Jones, Paul P. Koehler and Thomas D. Koehler (each, a “Purchaser” and collectively,
the “Purchasers”), with
reference to the Company’s Certificate of Designations, Powers, Preferences, and
Rights of the Series B Cumulative Convertible Preferred Stock (the “Series B Certificate of
Designations”) with respect to its Series B Cumulative Convertible
Preferred Stock, $.001 par value per share (the “Series B Preferred
Stock”).  Capitalized terms not defined herein shall have the
respective meanings given to such terms in the Securities Purchase
Agreement.

       

      In
connection with the closing of the transactions contemplated by the Securities
Purchase Agreement and in furtherance thereof, the Company desires to waive
certain rights held by the Company and set forth in the Series B Certificate of
Designations in favor of the Purchasers, in their capacities as holders of
shares of the Company’s Series B Preferred Stock.

       

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

       

      1. Waiver of
Series B PIK Right.  The Company hereby expressly waives its
right under Section 3(a) of the Series B Certificate of Designations to pay any
dividends due and payable to any Purchaser as a holder of Series B Preferred
Stock in shares of Series B Preferred Stock (the “Series B PIK
Right”).  The Company hereby covenants that it shall not,
without the prior written consent of the Purchaser, exercise or attempt to
exercise as to such Purchaser the Series B PIK Right provided for in Section
3(a) of the Series B Certificate of Designations at any time following the date
of this Letter Agreement.

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

       

      
        Neil M.
Koehler

        Bill
Jones

        Paul P.
Koehler

        Thomas D.
Koehler

        May 22, 2008

        Page 2

      

       

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

       

      In
witness whereof, the parties have executed this Letter Agreement as of May 22,
2008.

       

      PACIFIC
ETHANOL, INC.

       

       

      By: /S/ JOHN T. MILLER            

      John T.
Miller, COO

       

      

      INVESTORS:

      

      

      

      /S/ NEIL M. KOEHLER        

      Neil M.
Koehler

       

      

       

      /S/ BILL JONES            

      Bill
Jones

       

      

       

      /S/ PAUL P. KOEHLER        

      Paul P.
Koehler

       

      

       

      /S/ THOMAS D. KOEHLER      

      Thomas D.
Koehler

       

       

       

       

      2paceth_8k-ex1004.htm

    Exhibit 10.4

    
 

    
       

      SUBSCRIPTION
AGREEMENT

       

      

      Pacific
Ethanol, Inc.

      400
Capitol Mall, Suite 2060

      Sacramento,
California 95814

      

      Gentlemen:

      

      The
undersigned (the “Investor”) hereby confirms
its agreement with you as follows:

       

      1. This
Subscription Agreement, including the Terms and Conditions For Purchase of Units
attached hereto as Annex I
(collectively, this “Agreement”) is made as of the
date set forth below between Pacific Ethanol, Inc., a Delaware corporation (the
“Company”), and the
Investor.

       

      2. The
Company has authorized the sale and issuance to certain investors of up to an
aggregate of 6,000,000 units (the “Units”), each consisting of
(i) one share (the “Share,” collectively, the
“Shares”) of its common
stock, par value $0.001 per share (the “Common Stock”), (ii) one
warrant (the “Warrant”
and, together, the “Warrants”) to purchase 0.50
shares of Common Stock (and the fractional amount being the “Warrant Ratio”), in
substantially the form attached hereto as Exhibit B, subject to
adjustment by the Company’s Board of Directors, or a committee thereof, for a
purchase price of $4.75 per Unit (the “Purchase
Price”).  The Shares issuable upon exercise of the Warrants are
referred to herein as the “Warrant Shares” and, together
with the Units, the Shares and the Warrants, are referred to herein as the
“Securities”.

       

      3. The
offering and sale of the Units (the “Offering”) are being made
pursuant to (1) an effective Registration Statement on Form S-3, File No.
333-143617 (including the Prospectus contained therein (the “Base Prospectus”), the “Registration Statement”),
filed by the Company with the Securities and Exchange Commission (the “Commission”), (2) if
applicable, certain “free writing prospectuses” (as that term is defined in Rule
405 under the Securities Act of 1933, as amended (the “Act”)), that have been or
will be filed with the Commission and delivered to the Investor on or prior to
the date hereof and (3) a Prospectus Supplement (the “Prospectus Supplement” and
together with the Base Prospectus, the “Prospectus”) containing
certain supplemental information regarding the Units and terms of the Offering
that will be filed with the Commission and delivered to the Investor (or made
available to the Investor by the filing by the Company of an electronic version
thereof with the Commission), along with the Company's counterpart to this
Agreement and (iv) if the Company has filed an abbreviated registration
statement to register additional securities pursuant to Rule 462(b) (the “462(b) Registration
Statement”), then any reference herein to the Registration Statements
shall also be deemed to include such 462(b) Registration Statement.

       

      4. The
Company and the Investor agree that the Investor will purchase from the Company
and the Company will issue and sell to the Investor the Units set forth below
for the aggregate purchase price set forth below.  The Units shall be
purchased pursuant to the Terms and Conditions for Purchase of Units attached
hereto as Annex
I and incorporated herein by this reference as if fully set forth
herein.  The Investor acknowledges that the Offering is not being
underwritten by the placement agent (the “Placement Agent”) named in
the Prospectus Supplement and that there is no minimum offering
amount.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      5. The
manner of settlement of the Shares included in the Units purchased by the
Investor shall be as follows:

       

      Delivery
versus payment (“DVP”)
through the Depository Trust Company (“DTC”) (i.e., at closing, the Company
shall issue Shares registered in the Investor’s name and address as set forth
below and released by American Stock Transfer & Trust Company (the “Transfer Agent”) directly to
the account(s) at Lazard Capital Markets LLC (“LCM”) identified by the
Investor; upon receipt of such Shares, LCM shall promptly electronically deliver
such shares to the Investor, and simultaneously therewith payment shall be made
by LCM by wire transfer to the Company)  NO LATER THAN ONE (1) BUSINESS DAY
AFTER THE EXECUTION OF THIS AGREEMENT BY THE INVESTOR AND THE COMPANY, THE
INVESTOR SHALL:

       

      
        	
                 
      

              	
                (I)

              	
                NOTIFY LCM OF THE ACCOUNT OR
      ACCOUNTS AT LCM TO BE CREDITED WITH THE SHARES BEING PURCHASED BY SUCH
      INVESTOR, AND

              

      

       

      
        	
                 
      

              	
                (II)

              	
                CONFIRM
      THAT THE ACCOUNT OR ACCOUNTS AT LCM TO BE CREDITED WITH THE SECURITIES
      BEING PURCHASED BY THE INVESTOR HAVE A MINIMUM BALANCE EQUAL TO THE
      AGGREGATE PURCHASE PRICE FOR THE UNITS BEING PURCHASED BY THE
      INVESTOR.

              

      

       

      IT IS THE INVESTOR’S
RESPONSIBILITY TO (A) MAKE THE NECESSARY WIRE TRANSFER OR CONFIRM THE PROPER
ACCOUNT BALANCE IN A TIMELY MANNER AND (B) ARRANGE FOR SETTLEMENT BY WAY OF DVP
IN A TIMELY MANNER.  IF THE INVESTOR DOES NOT DELIVER THE AGGREGATE
PURCHASE PRICE FOR THE UNITS OR DOES NOT MAKE PROPER ARRANGEMENTS FOR SETTLEMENT
IN A TIMELY MANNER, THE UNITS MAY NOT BE DELIVERED AT CLOSING TO THE INVESTOR OR
THE INVESTOR MAY BE EXCLUDED FROM THE OFFERING ALTOGETHER.

       

      6.           The
Investor represents that, except as set forth below, (a) it has had no position,
office or other material relationship within the past three years with the
Company or persons known to it to be affiliates of the Company, (b) it is not a
FINRA member or an Associated Person (as such term is defined under the FINRA
Membership and Registration Rules Section 1011) as of the Closing, and (c)
neither the Investor nor any group of Investors (as identified in a public
filing made with the Commission) of which the Investor is a part in connection
with the Offering, acquired, or obtained the right to acquire, 20% or more of
the Common Stock (or securities convertible into or exercisable for Common
Stock) or the voting power of the Company on a post-transaction
basis.  Exceptions:

       

      
        
          

        

      

      (If no
exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

       

      7.           The
executed Warrant shall be delivered in accordance with the terms
thereof.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      8.           The
Investor represents that it has received (or otherwise had made available to it
by the filing by the Company of an electronic version thereof with the
Commission) the Base Prospectus, dated July 27, 2007, which is a part of the
Company’s Registration Statement, the documents incorporated by reference
therein and any free writing prospectus (collectively, the “Disclosure Package”), prior
to or in connection with the receipt of this Agreement.  The Investor
acknowledges that, prior to the delivery of this Agreement to the Company, the
Investor will receive certain additional information regarding the Offering,
including pricing information (the “Offering Information”). Such
information may be provided to the Investor by any means permitted under the
Act, including the Prospectus Supplement, a free writing prospectus and oral
communications.

       

      9.           No
offer by the Investor to buy the Units will be accepted and no part of the
Purchase Price will be delivered to the Company until the Investor has received
the Offering Information and the Company has accepted such offer by
countersigning a copy of this Agreement, and any such offer may be withdrawn or
revoked, without obligation or commitment of any kind, at any time prior to the
Company (or LCM on behalf of the Company) sending (orally, in writing or by
electronic mail) notice of its acceptance of such offer.  An
indication of interest will involve no obligation or commitment of any kind
until the Investor has been delivered the Offering Information and this
Agreement is accepted and countersigned by or on behalf of the
Company.

       

      

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      

       

       

      Number of
Shares: ___________________________________

       

      Number of
Warrants:  _________________________________

       

      Purchase
Price Per Unit: $______________________________

       

      Aggregate
Purchase Price: $____________________________

      

       

      Please confirm that the foregoing
correctly sets forth the agreement between us by signing in the space provided
below for that purpose.

       

      

       

      Dated as
of:  May __, 2008

       

       

      _______________________________

      INVESTOR

       

      By: _____________________________

      Print
Name:________________________

      Title: ____________________________

      Address: _________________________

      _________________________________

       

      

      
 

      Agreed
and Accepted

      this ___
day of May, 2008:

      

       

      PACIFIC
ETHANOL, INC.

       

      

      By: _________________________________

      Title:

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      ANNEX I

       

      TERMS
AND CONDITIONS FOR PURCHASE OF UNITS

       

      1.           Authorization and Sale of the
Units.  Subject to the terms and conditions of this Agreement,
the Company has authorized the sale of the Units.

       

      2.           Agreement
to Sell and Purchase the Units; Placement Agent.

       

      2.1           At
the Closing (as defined in Section 3.1), the
Company will sell to the Investor, and the Investor will purchase from the
Company, upon the terms and conditions set forth herein, the respective number
of Units set forth on the last page of the Agreement to which these Terms and
Conditions for Purchase of Units are attached as Annex I (the “Signature Page”) for the
aggregate purchase price therefor set forth on the Signature Page.

       

      2.2           Investor
acknowledges that the Company has agreed to pay Lazard Capital Markets LLC (the
“Placement Agent” or
“LCM”) a fee (the
“Placement Fee”) in
respect of the sale of Units to the Investor.

      

      2.3           The
Company has entered into a Placement Agent Agreement, dated the date hereof (the
“Placement Agreement”),
with the Placement Agent that contains certain representations, warranties,
covenants and agreements of the Company that may be relied upon by the Investor,
which shall be a third party beneficiary thereof.  The Company
confirms that neither it nor any other Person acting on its behalf has provided
the Investor with any information that constitutes or could reasonably be
expected to constitute material, nonpublic information, except as will be
disclosed in the Prospectus and the Company’s Form 8-K filed with the Commission
in connection with the Offering.  The Company understands and confirms
that the Investor will rely on the foregoing representations in effecting
transactions in securities of the Company.

      

      3.           Closings
and Delivery of the Shares, Warrants and Funds.

       

      3.1           Closing.  The completion of
the purchase and sale of the Units (the “Closing”) shall occur at a
place and time (the “Closing
Date”) to be specified by the Company and the Placement Agent, and of
which the Investor will be notified in advance by the Placement Agent, in
accordance with Rule 15c6-1 promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”).  At
the Closing, (a) the Company shall cause the Transfer Agent to deliver to the
Investor the number of Shares set forth on the Signature Page registered in the
name of the Investor or, if so indicated on the Investor Questionnaire attached
hereto as Exhibit
A, in the name of a nominee designated by the Investor, (b) the Company
shall cause to be delivered to the Investor a Warrant to purchase a number of
whole Warrant Shares determined by multiplying the number of Shares (and Units)
set forth on the signature page by the Warrant Ratio, and rounding down to the
nearest whole number and (c) the aggregate purchase price for the Units being
purchased by the Investor will be delivered by or on behalf of the Investor to
the Company.

       

      3.2           Conditions
to the Company’s Obligations.  (a)  The
Company’s obligation to issue and sell the Units to the Investor shall be
subject to: (i) the receipt by the Company of the purchase price for the Units
being purchased hereunder as set forth on the Signature Page and (ii) the
accuracy of the representations and warranties made by the Investor and the
fulfillment of those undertakings of the Investor to be fulfilled prior to the
Closing Date.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      
 

      (b)           Conditions
to the Investor’s Obligations.  The Investor’s
obligation to purchase the Units will be subject to the condition that the
Placement Agent shall not have: (a) terminated the Placement Agreement pursuant
to the terms thereof or (b) determined that the conditions to the closing in the
Placement Agreement have not been satisfied.

      

      3.3           Delivery
of Funds.

      

      Delivery Versus Payment
through The Depository Trust Company.  The Investor has elected
to settle the Shares purchased by such Investor by delivery versus payment
through DTC; no later
than one (1) business day after the execution of this Agreement by the Investor
and the Company, the Investor shall confirm that the account or accounts
at LCM to be credited with the Shares being purchased by the Investor have a
minimum balance equal to the aggregate purchase price for the Units being
purchased by the Investor.

      

      3.4           Delivery
of Shares and Warrants.

      

      Delivery Versus Payment
through The Depository Trust Company.  The Investor has elected
to settle the Shares purchased by such Investor by delivery versus payment
through DTC; no later
than one (1) business day after the execution of this Agreement by the Investor
and the Company, the Investor shall notify LCM of the account or accounts
at LCM to be credited with the Shares being purchased by such
Investor.  On the Closing Date, the Company shall deliver the Shares
to the Investor through DTC directly to the account(s) at LCM identified by
Investor and simultaneously therewith payment shall be made by LCM by wire
transfer to the Company.  In addition, on the closing Date, the
Company shall deliver or cause to be delivered by overnight courier the Warrant
purchased by such Investor.

      

      4.           Representations,
Warranties and Covenants of the Investor.

       

      The Investor acknowledges, represents
and warrants to, and agrees with, the Company and the Placement Agent
that:

       

      4.1           The
Investor (a) is knowledgeable, sophisticated and experienced in making, and is
qualified to make decisions with respect to, investments in shares presenting an
investment decision like that involved in the purchase of the Units, including
investments in securities issued by the Company and investments in comparable
companies, (b) has answered all questions on the Signature Page and the Investor
Questionnaire and the answers thereto are true and correct as of the date hereof
and will be true and correct as of the Closing Date and (c) in connection with
its decision to purchase the number of Units set forth on the Signature Page,
has received and is relying solely upon (i) the Disclosure Package and the
documents incorporated by reference therein and (ii) the Offering
Information.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      4.2           (a)
No action has been or will be taken in any jurisdiction outside the United
States by the Company or the Placement Agent that would permit an offering of
any of the Securities, or possession or distribution of offering materials in
connection with the issue of the Securities in any jurisdiction outside the
United States where action for that purpose is required, (b) if the Investor is
outside the United States, it will comply with all applicable laws and
regulations in each foreign jurisdiction in which it purchases, offers, sells or
delivers Securities or has in its possession or distributes any offering
material, in all cases at its own expense and (c) the Placement Agent is not
authorized to make and has not made any representation, disclosure or use of any
information in connection with the issue, placement, purchase and sale of the
Securities, except as set forth or incorporated by reference in the Base
Prospectus or the Prospectus Supplement.

       

      4.3           (a)
The Investor has full right, power, authority and capacity to enter into this
Agreement and to consummate the transactions contemplated hereby and has taken
all necessary action to authorize the execution, delivery and performance of
this Agreement, and (b) this Agreement constitutes a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’ and
contracting parties’ rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
to the enforceability of any rights to indemnification or contribution that may
be violative of the public policy underlying any law, rule or regulation
(including any federal or state securities law, rule or
regulation).

       

      4.4           The
Investor understands that nothing in this Agreement, the Prospectus or any other
materials presented to the Investor in connection with the purchase and sale of
the Units constitutes legal, tax or investment advice.  The Investor
has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of Units.

       

      4.5           Since
the time at which the Placement Agent first contacted such Investor about the
Offering, the Investor has not engaged in any purchases or sales of the
securities of the Company (including, without limitation, any Short Sales (as
defined herein) involving the Company’s securities), and has not violated its
obligations of confidentiality.  The Investor covenants that it will
not engage in any purchases or sales of the securities of the Company (including
Short Sales) or disclose any information about the contemplated offering (other
than to its advisors that are under a legal obligation of confidentiality) prior
to the time that the transactions contemplated by this Agreement are publicly
disclosed.  Each Investor agrees that it will not use any of the
Securities acquired pursuant to this Agreement to cover any short position in
the Common Stock if doing so would be in violation of applicable securities
laws.  For purposes hereof, “Short Sales” include, without limitation,
all “short sales” as defined in Rule 200 promulgated under Regulation SHO under
the Exchange Act, whether or not against the box, and all types of direct and
indirect stock pledges, forward sales contracts, options, puts, calls, short
sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the
Exchange Act) and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or foreign regulated
brokers.

       

      5.           Survival of Representations,
Warranties and Agreements; Third Party
Beneficiary.  Notwithstanding any investigation made by any
party to this Agreement or by the Placement Agent, all covenants, agreements,
representations and warranties made by the Company and the Investor herein will
survive the execution of this Agreement, the delivery to the Investor of the
Units being purchased and the payment therefor.  The Placement Agent
and Lazard Fréres & Co. shall be third party beneficiaries with respect to
the representations, warranties and agreements of the Investor in Section 4
hereof.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      6.           Notices.  All
notices, requests, consents and other communications hereunder will be in
writing, will be mailed (a) if within the domestic United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile or (b) if delivered from outside the
United States, by International Federal Express or facsimile, and will be deemed
given (i) if delivered by first-class registered or certified mail domestic,
three business days after so mailed, (ii) if delivered by nationally recognized
overnight carrier, one business day after so mailed, (iii) if delivered by
International Federal Express, two business days after so mailed and (iv) if
delivered by facsimile, upon electric confirmation of receipt and will be
delivered and addressed as follows:

       

      
        	
                (a)  

              	
                if to the Company,
      to:

              

      

       

      Pacific
Ethanol, Inc.

      400
Capitol Mall, Suite 2060

      Sacramento,
California 95814

      Attention:  Christopher
Wright

      Facsimile:
(916) 446-3937

      

       

      with copies
to:

       

      Rutan
& Tucker, LLP

      611 Anton
Boulevard, 14th Floor

      Costa
Mesa, California 92626

      Attention:
Larry A. Cerutti, Esq.

      Facsimile:
(714) 546-9035

       

      

      (b) if to the
Investor, at its address on the Signature Page hereto, or at such other address
or addresses as may have been furnished to the Company in writing.

       

      7.           Changes.  This
Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the Investor.

       

      8.           Headings.  The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and will not be deemed to be part of this
Agreement.

       

      9.           Severability.  In
case any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein will not in any way be affected or
impaired thereby.

       

      10.           Governing Law.  This
Agreement will be governed by, and construed in accordance with, the internal
laws of the State of New York, without giving effect to the principles of
conflicts of law that would require the application of the laws of any other
jurisdiction.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      11.           Counterparts.  This
Agreement may be executed in two or more counterparts, each of which will
constitute an original, but all of which, when taken together, will constitute
but one instrument, and will become effective when one or more counterparts have
been signed by each party hereto and delivered to the other
parties.  The Company and the Investor acknowledge and agree that the
Company shall deliver its counterpart to the Investor along with the Prospectus
Supplement (or the filing by the Company of an electronic version thereof with
the Commission).

       

      12.           Confirmation of
Sale.  The Investor acknowledges and agrees that such
Investor’s receipt of the Company’s counterpart to this Agreement, together with
the Prospectus Supplement (or the filing by the Company of an electronic version
thereof with the Commission), shall constitute written confirmation of the
Company’s sale of Units to such Investor.

       

      13.           Press Release.  The
Company and the Investor agree that the Company shall issue a press release
announcing the Offering and disclosing all material terms and conditions of the
Offering prior to the opening of the financial markets in New York City on the
business day immediately after the date hereof.

       

      14.           Termination.  In the
event that the Placement Agreement is terminated by the Placement Agent pursuant
to the terms thereof, this Agreement shall terminate without any further action
on the part of the parties hereto.

       

       

       

       

       

       

       

       

       

       

       

       

      9

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