Pacific Ethanol, Inc.
PURCHASE AGREEMENT DATED NOVEMBER 14, 2005
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>pacificethanol_8kex10-1.txt
<DESCRIPTION>PURCHASE AGREEMENT DATED NOVEMBER 14, 2005
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.1


                               PURCHASE AGREEMENT


                                     BETWEEN


                              PACIFIC ETHANOL, INC.


                                       AND


                           CASCADE INVESTMENT, L.L.C.


                             DATED NOVEMBER 14, 2005




<PAGE>

<TABLE>
                                                 TABLE OF CONTENTS

<S>                                                                                                             <C>
ARTICLE I. THE PREFERRED SHARES...................................................................................1

     SECTION 1.01          Issuance, Sale and Delivery of the Preferred Shares at the Closing.....................1
     SECTION 1.02          Closing................................................................................1
     SECTION 1.03          Use of Proceeds........................................................................2

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................2

     SECTION 2.01          Organization and Qualifications........................................................2
     SECTION 2.02          Certificate of Incorporation and Bylaws................................................2
     SECTION 2.03          Corporate Power and Authority..........................................................2
     SECTION 2.04          Authorization; Validity................................................................3
     SECTION 2.05          No Conflicts; No Violation.............................................................3
     SECTION 2.06          Authorized Capital Stock...............................................................3
     SECTION 2.07          Financial Statements...................................................................5
     SECTION 2.08          No Undisclosed Liabilities.............................................................5
     SECTION 2.09          Changes................................................................................5
     SECTION 2.10          Litigation; Compliance with Law........................................................7
     SECTION 2.11          Proprietary Information of Third Parties...............................................9
     SECTION 2.12          Intellectual Property..................................................................9
     SECTION 2.13          Real Property.........................................................................10
     SECTION 2.14          Assets................................................................................11
     SECTION 2.15          Insurance.............................................................................11
     SECTION 2.16          Taxes.................................................................................12
     SECTION 2.17          Agreements............................................................................13
     SECTION 2.18          Loans and Advances....................................................................15
     SECTION 2.19          Assumptions, Guaranties, Etc. of Indebtedness of Other Persons........................16
     SECTION 2.20          Customers and Suppliers...............................................................16
     SECTION 2.21          Approvals.............................................................................16
     SECTION 2.22          Offering of the Preferred Shares......................................................16
     SECTION 2.23          Offering Exemption....................................................................17
     SECTION 2.24          Brokers; Financial Advisors...........................................................17
     SECTION 2.25          Transactions With Affiliates..........................................................17
     SECTION 2.26          Employees.............................................................................17
     SECTION 2.27          Environmental and Safety Laws.........................................................18
     SECTION 2.28          Employee Benefit Plans and Employment Agreements......................................20
     SECTION 2.29          Foreign Corrupt Practices Act; USA Patriot Act........................................22
     SECTION 2.30          Illegal or Unauthorized Payments; Political Contributions.............................22
     SECTION 2.31          Pending Changes.......................................................................22
     SECTION 2.32          Investment Company Act................................................................22
     SECTION 2.33          Registration Rights...................................................................22
     SECTION 2.34          Books and Records.....................................................................22
     SECTION 2.35          Disclosure............................................................................23


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ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER..........................................24

     SECTION 3.01          Representations and Warranties of the Purchaser.......................................24
     SECTION 3.02          Restricted Securities.................................................................24
     SECTION 3.03          Legend................................................................................24

ARTICLE IV. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AND THE COMPANY.......................................25

     SECTION 4.01          Conditions to the Purchaser's Obligations at the Closing..............................25
     SECTION 4.02          Conditions to the Company's Obligations at the Closing................................28

ARTICLE V. COVENANTS OF THE COMPANY..............................................................................29

     SECTION 5.01          Reserve for Conversion Shares.........................................................29
     SECTION 5.02          Corporate Existence...................................................................29
     SECTION 5.03          Preservation of Property and Assets...................................................29
     SECTION 5.04          Properties, Business, Insurance.......................................................30
     SECTION 5.05          Directors and Officers Insurance......................................................30
     SECTION 5.06          Inspection, Consultation and Advice...................................................30
     SECTION 5.07          Restrictive Agreements Prohibited.....................................................30
     SECTION 5.08          Transactions with Affiliates..........................................................30
     SECTION 5.09          Payment of Taxes and Indebtedness.....................................................31
     SECTION 5.10          Internal Accounting Controls..........................................................31
     SECTION 5.11          Activities of Subsidiaries............................................................31
     SECTION 5.12          Stockholder Approval..................................................................31
     SECTION 5.13          Change of Operations..................................................................32
     SECTION 5.14          Indemnity.............................................................................32
     SECTION 5.15          Compliance with Laws..................................................................32
     SECTION 5.16          Keeping of Records and Books of Account...............................................33

ARTICLE VI. COVENANT OF THE COMPANY AND THE PURCHASER............................................................33

     SECTION 6.01          HSR Act Filings.......................................................................33

ARTICLE VII. MISCELLANEOUS.......................................................................................33

     SECTION 7.01          Expenses..............................................................................33
     SECTION 7.02          Survival of Agreements................................................................34
     SECTION 7.03          Brokerage.............................................................................34
     SECTION 7.04          Parties in Interest...................................................................34
     SECTION 7.05          Specific Performance..................................................................34
     SECTION 7.06          Further Assurances....................................................................34
     SECTION 7.07          Submission to Jurisdiction; Consent to Service of Process.............................34
     SECTION 7.08          Notices...............................................................................35
     SECTION 7.09          Governing Law.........................................................................35
     SECTION 7.10          Entire Agreement......................................................................35
     SECTION 7.11          Counterparts..........................................................................35
     SECTION 7.12          Amendments and Waivers................................................................35
     SECTION 7.13          Severability..........................................................................36
     SECTION 7.14          Titles and Subtitles; Interpretive Matters............................................36


                                                        ii


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     SECTION 7.15          Facsimile Signatures..................................................................36
     SECTION 7.16          Other Remedies........................................................................36
     SECTION 7.17          Certain Defined Terms.................................................................36


INDEX TO SCHEDULES
------------------

SCHEDULE 2.01              Organization
SCHEDULE 2.06              Stockholders, Options, Warrants, Voting Agreements, etc.
SCHEDULE 2.08              No Undisclosed Liabilities
SCHEDULE 2.09              Changes to Financial Statements
SCHEDULE 2.10              Litigation
SCHEDULE 2.12              Intellectual Property
SCHEDULE 2.13(a)           Owned Real Property
SCHEDULE 2.13(b)           Leased Real Property
SCHEDULE 2.14              Exceptions to Title
SCHEDULE 2.15              Insurance
SCHEDULE 2.17              Agreements
SCHEDULE 2.19              Assumptions, Guaranties, Etc. of Indebtedness of Other Persons
SCHEDULE 2.20              Customers and Suppliers
SCHEDULE 2.24              Brokers; Financial Advisors
SCHEDULE 2.25              Transactions with Affiliates
SCHEDULE 2.26(b)           Officers, Employees, Consultants, etc.
SCHEDULE 2.26(e)           Employment Agreements
SCHEDULE 2.27(b)           Environmental Reports
SCHEDULE 2.28              Employee Benefits
SCHEDULE 2.33              Registration Rights


INDEX TO EXHIBITS
-----------------

EXHIBIT A                  Certificate of Incorporation
EXHIBIT B                  Certificate of Designations
EXHIBIT C                  Form of Opinion Letter
EXHIBIT D                  Amended 1995 Incentive Stock Plan
EXHIBIT E                  2004 Stock Option Plan
EXHIBIT F                  Form of Deposit Agreement
EXHIBIT G                  Form of Registration Rights Agreement
EXHIBIT H                  Form of Voting Agreement


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<PAGE>

                              PACIFIC ETHANOL, INC.

                               PURCHASE AGREEMENT

         THIS PURCHASE AGREEMENT is made on the 14th day of November, 2005 (the
"AGREEMENT"), by and between Pacific Ethanol, Inc., a Delaware corporation (the
"COMPANY"), and Cascade Investment, L.L.C., a Washington limited liability
company (the "PURCHASER"). Certain capitalized terms used herein are defined in
Section 7.17 of this Agreement.

         WHEREAS, the Company desires to issue and sell to the Purchaser
5,250,000 shares (the "PREFERRED SHARES") of the Company's Series A Cumulative
Redeemable Convertible Preferred Stock, par value $.001 per share (the "SERIES A
PREFERRED Stock"), and the Purchaser desires to purchase the Preferred Shares on
the terms and subject to the conditions set forth in this Agreement; and

         WHEREAS the Company, certain of its officers and directors, and the
Purchaser are executing and delivering simultaneously herewith the Voting
Agreement pursuant to which such officers and directors have agreed, among other
things, to vote all of their shares of the Company's Common Stock, par value
$.001 per share (the "COMMON STOCK") in favor of (a) the sale and issuance of
the Preferred Shares to the Purchaser, (b) the issuance of 20% or more of the
shares of the Company's Common Stock, issued or issuable upon conversion of the
Preferred Shares, and (c) any and all other transactions contemplated hereby or
in the other Transaction Documents, at any annual or special meeting of
stockholders of the Company at which such matters are put to a vote.

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

                                   ARTICLE I.

                              THE PREFERRED SHARES

         SECTION 1.01 ISSUANCE, SALE AND DELIVERY OF THE PREFERRED SHARES AT THE
CLOSING. At the Closing (as defined in Section 1.02 hereof), on the terms and
subject to the conditions of this Agreement, the Company shall issue and sell to
the Purchaser, and the Purchaser shall purchase from the Company, 5,250,000
Preferred Shares for the aggregate purchase price of $84,000,000.

         SECTION 1.02 CLOSING.

         (a) The Closing shall take place at 10:00 a.m. at the offices of Rutan
& Tucker, LLP, 611 Anton Blvd., Costa Mesa, California, on the Closing Date. At
the Closing, the Company shall issue and deliver to the Purchaser a stock
certificate or certificates in definitive form, registered in the name of the
Purchaser, representing 5,250,000 Preferred Shares. As payment in full for the
Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on the
Closing Date, the Purchaser shall (a) pay to the Company by wire transfer or by



<PAGE>

such other method as may be reasonably acceptable to the Company, immediately
available funds in the amount of $4,000,000, and (b) make a deposit of
$80,000,000 into the restricted cash account established by the Company pursuant
to the Deposit Agreement with a bank or trust company approved by the Purchaser
(the "TRUSTEE"). Such amounts shall be paid to the respective accounts as shall
have been designated in writing to the Purchaser at least two (2) business days
prior to the Closing Date by the Company and the Trustee.

         (b) The Company shall reimburse the Purchaser for the costs and
expenses described in Section 7.01 by wire transfer or by such other method as
may be reasonably acceptable to the Purchaser, in immediately available funds.
Such amounts shall be paid to the account of the Purchaser as shall have been
designated in writing to the Company at least two (2) business days prior to the
Closing Date by the Purchaser.

         SECTION 1.03 USE OF PROCEEDS. The Company agrees to use the net
proceeds from the sale and issuance of the Preferred Shares pursuant to this
Agreement for (a) with respect to the portion of the proceeds deposited with the
Trustee, the construction of ethanol production facilities in accordance with
the terms of the Deposit Agreement, and (b) with respect to the portion of the
proceeds paid directly to the Company, working capital.

                                  ARTICLE II.

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company represents and warrants to the Purchaser that:

         SECTION 2.01 ORGANIZATION AND QUALIFICATIONS. The Company and each of
its Subsidiaries is duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation or organization as set
forth in SCHEDULE 2.01 and has the requisite power and authority to own, lease
and operate its assets, properties and business and to carry on its business as
it is now being conducted or proposed to be conducted. The Company and each of
its Subsidiaries is duly qualified as a foreign corporation to transact
business, and is in good standing, in each jurisdiction where it owns or leases
real property or maintains employees or where the nature of its activities make
such qualification necessary.

         SECTION 2.02 CERTIFICATE OF INCORPORATION AND BYLAWS. The Company has
delivered to the Purchaser true, correct, and complete copies of the Company's
Certificate of Incorporation, including all certificates of amendment, a copy of
which is attached hereto as Exhibit A, and the Certificate of Designations,
Powers, Preferences and Rights of Series A Cumulative Redeemable Convertible
Preferred Stock in the form included in Exhibit B attached hereto (the
"CERTIFICATE OF DESIGNATIONS" and, together with the certificate of
incorporation and all certificates of amendment thereof, the "AMENDED CHARTER")
and the Company's Bylaws (the "BYLAWS"), in each case, as in effect on the date
hereof.

         SECTION 2.03 CORPORATE POWER AND AUTHORITY. The Company has all
requisite power and authority to execute and deliver each of the Transaction
Documents to which it is a party. The Company has all requisite legal and
corporate power and authority to issue, sell and deliver the Preferred Shares to
the Purchaser hereunder, to issue and deliver additional shares of Series A
Preferred Stock as dividends in accordance with Section 3(a) of the Certificate
of Designations (the "Dividend Shares") and to issue and deliver the shares of


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<PAGE>

Common Stock issuable upon conversion of the Series A Preferred Stock (the
"CONVERSION Shares"). The Conversion Shares have been duly reserved for issuance
and when issued will be duly and validly issued, fully paid and nonassessable.

         SECTION 2.04 AUTHORIZATION; VALIDITY. The Company's: (a) execution and
delivery of the Transaction Documents and performance of its obligations
thereunder, (b) execution and filing of the Certificate of Designations, (c)
issuance, sale and delivery of the Preferred Shares and, when declared as a
dividend, the Dividend Shares, and (d) issuance and delivery of the Conversion
Shares have been duly authorized by all requisite corporate action or will have
been so authorized prior to the Closing Date and, other than stockholder
approval and approvals of or required by the NASDAQ National Market, if any, no
other corporate action on the part of the Company or any Subsidiary or other
approval or authorization is required on the part of the Company, any Subsidiary
or any person by Law or otherwise in order to make the Transaction Documents the
valid, binding and enforceable obligations of the Company. Each of the
Transaction Documents, when executed and delivered by the Company, will
constitute a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its respective terms.

         SECTION 2.05 NO CONFLICTS; NO VIOLATION. The Company is not in
violation of or default under any provision of its Amended Charter or Bylaws. No
Subsidiary is in violation of or default under any provision of its articles or
certificate of incorporation or bylaws or, if such Subsidiary is not a
corporation, similar organizational and formation documents. The execution,
delivery, and performance of, and compliance with, the Transaction Documents and
the consummation of the transactions contemplated hereby and thereby, including
the issuance, sale and delivery of the Preferred Shares and any Dividend Shares
and issuance and delivery of the Conversion Shares, have not and will not (a)
violate any Law or any order, injunction, ruling, writ, award, judgment or
decree of any court or other agency of government or authority which is
applicable to the Company or any Subsidiary or any of their assets, properties
or businesses, or any provision of any indenture, agreement, contract, license,
arrangement, understanding, evidence of indebtedness, note, lease or other
instrument to which the Company or any Subsidiary or any of their assets,
properties or businesses is bound, (b) conflict with, result in a breach of, or
constitute (or, with due notice or lapse of time or both, would constitute) a
default under, or give rise to any right of termination, acceleration or
cancellation under, any such indenture, agreement, contract, license,
arrangement, understanding, evidence of indebtedness, note, lease or other
instrument, or (c) result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon the Company or
any Subsidiary or any of their assets, properties or businesses. No provision of
any Transaction Document violates, conflicts with, results in a breach of or
constitutes (or, with due notice or lapse of time or both, would constitute) a
default by any other party under any other indenture, agreement, contract,
license, arrangement, understanding, evidence of indebtedness, note, lease or
other instrument.

         SECTION 2.06 AUTHORIZED CAPITAL STOCK.

         (a) The Company's authorized capital stock consists of 10,000,000
shares of Preferred Stock, par value $.001 per share (the "PREFERRED STOCK"),
and 100,000,000 shares of Common Stock. At the date of this Agreement,
28,667,185 shares of Common Stock are outstanding, and no shares of Preferred
Stock are outstanding. In addition, there are 927,500 shares of Common Stock


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reserved for issuance upon exercise of outstanding options for Common Stock,
2,499,833 additional shares of Common Stock reserved for issuance upon exercise
of options available for grant under the Stock Option Plans (as defined in
Section 4.01(j) hereof), 3,116,088 shares of Common Stock reserved for issuance
upon exercise of warrants, and no shares are held in the Company's treasury. The
stockholders of record and holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number of shares of
Common Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each are as set forth in
the attached SCHEDULE 2.06. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of the Company's authorized capital stock are as set forth in the Certificate of
Incorporation, a copy of which is attached hereto as EXHIBIT A, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached SCHEDULE 2.06: (i) no
Person owns of record any share of, or is known to the Company to own
beneficially more than 5% of, the Common Stock, (ii) no subscription, warrant,
option, convertible security, or other right (contingent or other) to purchase
or otherwise acquire equity securities of the Company is authorized or
outstanding and (iii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other such rights
or to distribute to holders of any of its equity securities any evidence of
indebtedness or asset. Except as set forth in the attached SCHEDULE 2.06, the
Company has no obligation (contingent or other) to purchase, repurchase, redeem,
retire or otherwise acquire any of its equity securities or any interest therein
or to pay any dividend or make any other distribution in respect thereof. Except
as set forth in the attached SCHEDULE 2.06, no stock plan, stock purchase, stock
option or other agreement or understanding between the Company and any holder of
any equity securities of the Company or rights to purchase equity securities of
the Company provides for acceleration or other changes in the vesting provisions
or other terms of such securities, as the result of any merger, sale of stock or
assets, change in control or other similar transaction by the Company. Except
for the Voting Agreement, the Registration Rights Agreement and such other
agreements as set forth in the attached SCHEDULE 2.06, there are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or other similar rights
or proxies relating to any of the Company's securities (whether or not the
Company is a party thereto), or agreements relating to the issuance, sale,
redemption, transfer or other disposition of the Company's securities. The
Conversion Shares issuable upon conversion of the Preferred Shares shall
constitute, at the time of the Closing, not less than 24.3% of the Company's
outstanding capital stock, calculated on a fully-diluted basis, including
dilution for all shares issued or issuable under the Stock Option Plans (as
defined in Section 4.01(j)). All of the outstanding shares of Common Stock of
the Company are duly authorized and validly issued, are fully paid and
nonassessable and are owned of record by the stockholders and the amounts set
forth in SCHEDULE 2.06 and have been issued in compliance with all applicable
federal and state securities laws.

         (b) The Preferred Shares shall have been duly authorized and the
Preferred Shares, when issued in accordance with this Agreement, and the
Dividend Shares, when issued in payment of any dividend, will be duly and
validly issued, fully paid and nonassessable shares of Series A Preferred Stock
and will be free and clear of all liens, charges, restrictions, claims and


                                       4


<PAGE>

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

         SECTION 2.07 FINANCIAL STATEMENTS. The Company has delivered to the
Purchaser the audited financial statements of the Company and its Subsidiaries
as at and for the years ended December 31, 2002, 2003 and 2004 and unaudited
financial statements as at and for the fiscal quarters ended March 31, 2005,
June 30, 2005 and September 30, 2005 (the "FINANCIAL STATEMENTS"). Each of the
Financial Statements was prepared in good faith, is complete and correct, and
has been prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied throughout the periods covered thereby
and fairly and accurately present the financial condition and operating results
of the Company and its Subsidiaries as of the dates, and for the periods,
indicated therein, and are consistent with the books and records of the Company
and each of its Subsidiaries (which books and records are correct and complete)
except that the unaudited financial statements as at and for the fiscal quarters
ended March 31, 2005, June 30, 2005 and September 30, 2005 are subject to normal
year-end adjustments.

         SECTION 2.08 NO UNDISCLOSED LIABILITIES. None of the Company or its
Subsidiaries has any liabilities (whether accrued, absolute, contingent or
otherwise, and whether due or to become due or asserted or unasserted), except
(a) liabilities provided for in the Financial Statements (other than liabilities
which, in accordance with GAAP, need not be disclosed), and (b) liabilities
(including accounts payable) incurred since the date of the Financial Statements
in the ordinary course of business consistent with past practice. The Company
knows of no basis for the assertion against the Company or any of its
Subsidiaries of any liabilities not adequately reflected or reserved against in
the Financial Statements. Except as disclosed in the Financial Statements and in
Schedule 2.08, none of the Company or its Subsidiaries is a guarantor or
indemnitor of any indebtedness of any other person or entity.

         SECTION 2.09 CHANGES. Except as expressly contemplated by the
Transaction Documents or as set forth on SCHEDULE 2.09, since June 30, 2005:

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


                                       5


<PAGE>

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

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

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

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

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

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

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

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

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


                                       6


<PAGE>

         (k) none of the Company or its Subsidiaries has mortgaged, pledged or
subjected to any lien or encumbrance any of its assets, acquired any assets, or
sold, assigned, transferred, conveyed, leased or otherwise disposed of any
assets, except for assets acquired or sold, assigned, transferred, conveyed,
leased or otherwise disposed of in the ordinary course of business consistent
with the its past practice or liens for taxes not yet due or payable;

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

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

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

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

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

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

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

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

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


                                       7


<PAGE>

         SECTION 2.10 LITIGATION; COMPLIANCE WITH LAW.

         (a) Except as set forth in SCHEDULE 2.10, there is no (i) action, suit,
claim, proceeding or investigation pending or, to the Company's knowledge,
threatened, against or affecting the Company or any Subsidiary or any of their
properties or assets, at law or in equity, or before or by any federal, state,
municipal or other governmental body, department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (ii) arbitration proceeding
pending or, to the Company's knowledge, threatened, against or affecting the
Company or any Subsidiary or any of their properties or assets or (iii)
governmental inquiry pending or, to the Company's knowledge, threatened, against
or affecting the Company or any Subsidiary or any of their properties or assets
(including without limitation any inquiry as to the Company's or any of its
Subsidiary's qualification to hold or receive any license or permit), and to the
best of the Company's knowledge, there is no basis for any of the foregoing.
None of the Company or its Subsidiaries has received any opinion or memorandum
or legal advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any liability or disadvantage which may result in a
Material Adverse Change. None of the Company or its Subsidiaries is in default
with respect to any order, writ, judgment, injunction or decree known to or
served upon the Company or such Subsidiary of any court or of any federal,
state, municipal or other governmental body, department, commission, board,
bureau, agency or instrumentality, domestic or foreign. There is no action,
suit, proceeding or investigation by the Company or any Subsidiary pending,
threatened or contemplated against others.

         (b) The Company and each Subsidiary has complied, in all respects, with
all Laws, applicable to it and its business, operations, properties, assets,
products and services. The Company and each Subsidiary has all necessary
permits, licenses, registrations, franchises, approvals, exemptions and other
authorizations required to conduct its business as conducted and to consummate
the transactions contemplated by this Agreement and the other Transaction
Documents and believes it can obtain any similar permits, licenses,
registrations, franchises, approvals, exemptions and other authorizations for
the conduct of its business as currently planned by the Company and the
Subsidiaries to be conducted. The Company and each Subsidiary has been operating
its business pursuant to and in compliance with the terms of all such permits,
licenses, registrations, franchises, approvals, exemptions and other
authorizations. Such permits, licenses, registrations, franchises, approvals,
exemptions and other authorizations have been validly issued. No default or
violation, or event that with the lapse of time or giving of notice or both
would become a default or violation, has occurred in the due observance of any
such permits, licenses, registrations, franchises, approvals, exemptions and
other authorizations. All such permits, licenses, registrations, franchises,
approvals, exemptions and other authorizations are in full force and effect
without further consent or approval of any Person. None of the Company or its
Subsidiaries has received any notice from any source (i) to the effect that it
lacks any such permits, licenses, registrations, franchises, approvals,
exemptions or other authorizations required in connection with it's current or
proposed operations or otherwise asserting a violation of law applicable to the
conduct of its business, (ii) threatening to revoke any permit, license,
registration, franchise, approval, exemption or other authorization or (iii)
restricting or in any way limiting its operations as currently conducted or
proposed to be conducted, in each case which has not been heretofore remedied or
resolved.


                                       8


<PAGE>

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

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

         SECTION 2.12 INTELLECTUAL PROPERTY.

         (a) The Company and each Subsidiary has, or has the right to use
pursuant to license or other written authorization, all right, title and
interest in and to all patents and patent rights, trademarks and trademark
rights, trade names and trade name rights, service marks and service mark
rights, service names and service name rights, brand names, inventions,
processes, formulae, copyrights and copyright rights, trade dress, business and
product names, logos, slogans, trade secrets, industrial models, processes,
designs, methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing, engineering and
technical drawings, know-how, concepts and all proprietary rights and
intellectual property and copies and tangible embodiments thereof (in whatever
form or medium) all pending applications for and registrations of patents,
trademarks, service marks and copyrights (together, "INTELLECTUAL PROPERTY")
necessary for its business as now conducted and as proposed to be conducted,
without any conflict with or infringement of the rights of others. Set forth in


                                       9


<PAGE>

SCHEDULE 2.12 is a list of all patents and registered trademarks and copyrights
owned or licensed by the Company and its Subsidiaries and each other material
item of Intellectual Property used by the Company and its Subsidiaries. All
registrations on behalf of the Company or its Subsidiaries with and applications
to governmental or regulatory authorities in respect of all Intellectual
Property of the Company and its Subsidiaries are valid and in full force and
effect and are not subject to any other actions by the Company or any of its
Subsidiaries to maintain their validity or effectiveness. The Company and each
of its Subsidiaries has taken reasonable security measures to protect the
secrecy, confidentiality and value of its trade secrets. Except as set forth in
SCHEDULE 2.12, there are no outstanding options, licenses, or agreements of any
kind relating to the Intellectual Property of the Company or its Subsidiaries,
nor are the Company or its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other Person.

         (b) None of the Company or its Subsidiaries has, nor has any of them
received any communications alleging that it has, violated or, by conducting its
business as now conducted or as proposed to be conducted, would violate any of
the Intellectual Property of any other Person. None of the Company or its
Subsidiaries is aware that any of its Intellectual Property is being infringed
by any other Person. None of the Company or its Subsidiaries is aware, after due
and proper investigation, that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the Company's or such Subsidiary's interests or that would
conflict with the Company's or such Subsidiary's business as now conducted or as
proposed to be conducted. None of the Company or its Subsidiaries is aware of
any instances where its employees, agents, advisors, consultants or
representatives have transferred Intellectual Property of the Company or any
Subsidiary without the consent of the Company or such Subsidiary.

         SECTION 2.13 REAL PROPERTY.

         (a) SCHEDULE 2.13(a) sets forth a complete list of all real property
and interests in real property owned by the Company or its Subsidiaries. The
Company or a Subsidiary has good, clear and marketable title to the real
property described on SCHEDULE 2.13(a) and such real property is free and clear
of all mortgages, pledges, security interests, liens, charges, claims,
restrictions and other encumbrances (including without limitation, easements and
licenses). There are no condemnation, environmental, zoning or other land use
regulation proceedings, either instituted or, to the best of the Company's
knowledge, planned to be instituted, which would adversely affect the use or
operation of such real property for its intended uses and purposes, or the value
of such real property, and none of the Company or its Subsidiaries has received
notice of any special assessment proceedings which would affect such real
property.

         (b) SCHEDULE 2.13(b) sets forth a complete list of all real property
and interests in real property leased by the Company or its Subsidiaries (each a
"REAL PROPERTY LEASE", and collectively, the "REAL PROPERTY LEASES") as lessee.
Neither the Company nor any of its Subsidiaries leases any real property as
lessor. No condemnation, environmental, zoning or other land use regulation
proceedings have been instituted or, to the best of the Company's knowledge
after due inquiry, are planned to be instituted, which would affect the use or
operation of the Company's and its Subsidiaries' properties and assets for their


                                       10


<PAGE>

respective intended uses and purposes, or the value of such properties, and none
of the Company or its Subsidiaries has received notice of any special assessment
proceedings which would affect such properties and assets.

         (c) Each of the Real Property Leases is a valid and subsisting
agreement, duly authorized and entered into and enforceable in accordance with
its terms. There is no default under any Real Property Lease by the Company or
any Subsidiary or, to the Company's knowledge, by any other party thereto, and
no event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder. The Company has delivered or
otherwise made available to the Purchaser and its counsel true, correct and
complete copies of the Real Property Leases, together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder. (d)No previous or current party to any Real Property Lease has
given notice of or made a claim with respect to any breach or default thereunder
by the Company or any Subsidiary. With respect to those Real Property Leases
that were assigned or subleased to the Company or any Subsidiary by a third
party, all necessary consents to such assignments or subleases have been
obtained except as set forth in Schedule 2.13(b).

         SECTION 2.14 ASSETS. Except as set forth in Schedule 2.14, the Company
and each of its Subsidiaries has good, legal and marketable title to all of its
personal property and assets, in each case free and clear of all liens, charges,
restrictions, claims or encumbrances of any nature whatsoever. With respect to
the personal property and assets that the Company and its Subsidiaries lease
(each a "PERSONAL PROPERTY LEASE", and collectively, the "PERSONAL PROPERTY
LEASES") (a) the Company and each of its Subsidiaries is in compliance with its
respective Personal Property Leases, (b) the Personal Property Leases are
enforceable in accordance with their terms, and (c) the Company or its
Subsidiary, as applicable, holds a valid leasehold interest free and clear of
any liens, charges, restrictions, claims or encumbrances of any nature
whatsoever. Each of the Personal Property Leases is a valid and subsisting
agreement, duly authorized and entered into and enforceable in accordance with
its terms, and there is no default under any Personal Property Lease by the
Company or any Subsidiary or, to the Company's knowledge, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder. The Company has delivered
or otherwise made available to the Purchaser and its counsel true, correct and
complete copies of the Personal Property Leases, together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder. All items of personal property and assets owned or leased by
the Company and its Subsidiaries are in good operating condition, normal wear
and tear excepted, are reasonably fit and useable for the purposes for which
they are being used, are adequate and sufficient for the business of the Company
or its Subsidiary, as applicable, and conform in all material respects with all
applicable laws. The carrying value of the assets of the Company and its
Subsidiaries on the Financial Statements is not overstated.

         SECTION 2.15 INSURANCE. There is in full force and effect one or more
policies of insurance issued by insurers of recognized responsibility, insuring
the Company and its Subsidiaries and their properties, business and projects
against such losses and risks, and in such amounts, on both a per occurrence and
an aggregate basis, as are customary in the case of corporations of established
reputation engaged in the same or similar business and similarly situated. The


                                       11


<PAGE>

Company has not received any notice or communication, either oral or written (a)
regarding the actual or possible cancellation or invalidation of any of such
policies or regarding any actual or possible adjustment in the amount of
premiums payable with respect to any of said policies, (b) regarding any actual
or possible refusal of coverage under, or any actual or possible rejection of
any claim under, any of such policies, (c) that the Company or any Subsidiary
will be unable to renew its existing insurance coverage as and when the same
shall expire, or (d) that the issuer of any such policies may be unwilling or
unable to perform any of its obligations thereunder. There is no pending claim
under any of the insurance policies of the Company or any of its Subsidiaries,
and no event has occurred or condition or circumstance exists that might (with
or without notice or lapse of time) directly or indirectly give rise to, or
serve as a basis for, any such claim. None of the Company or its Subsidiaries is
in default with respect to any provision contained in any insurance policy, and
none of the Company or its Subsidiaries has failed to give any notice or present
any presently existing claims under any insurance policy in due and timely
fashion. SCHEDULE 2.15 sets forth a list of each insurance policy (specifying
the insurer, the amount of coverage, the type of insurance, the policy number,
the expiration date, the annual premium maintained by the Company and each of
its Subsidiaries relating to its properties, assets, business or personnel.

         SECTION 2.16 TAXES. The Company and each of its Subsidiaries has
accurately and timely filed all federal, state, county and local tax returns and
reports required to be filed by it within the applicable period, and the Company
and each of its Subsidiaries has paid all taxes shown to be due by such returns
as well as all other taxes, assessments and governmental charges which have
become due or payable. Such returns and reports are true and correct in all
material respects. The Company and each of its Subsidiaries has established
adequate reserves for all taxes accrued but not yet payable. All tax elections
of any type which the Company or its Subsidiaries has made as of the date hereof
are set forth in the Financial Statements. None of the federal income tax
returns of the Company or its Subsidiaries has ever been audited by the Internal
Revenue Service. No claim or deficiency assessment with respect to or proposed
adjustment of the Company's or its Subsidiaries' federal, state, county or local
taxes is currently assessed or pending or threatened, and there is no basis for
any such claim, assessment or adjustment. There is no tax lien (other than for
current taxes not yet due and payable), whether imposed by any federal, state,
county or local taxing authority, outstanding against the assets, properties or
businesses or the Company or its Subsidiaries. None of the Company or its
Subsidiaries has executed any waiver of the statute of limitations on the
assessment or collection of any tax or governmental charge. None of the Company
or its Subsidiaries is a party to any agreement relating to the sharing,
allocation or indemnification of taxes. None of the Company, its Subsidiaries or
any of their present or former stockholders has ever made an election pursuant
to Section 1362 or Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "CODE"), that the Company or any Subsidiary be taxed as a
Subchapter S corporation or a collapsible corporation or any other election
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would result in a Material
Adverse Change. The Company's net operating losses for federal income tax
purposes as set forth in the Financial Statements are not subject to any
limitations imposed by Section 382 of the Code and the full amount of such net
operating losses are available to offset the Company's taxable income for the
current fiscal year and, to the extent not so used, succeeding fiscal years.
Consummation of the transactions contemplated by the Transaction Documents or by
any other agreement, understanding or commitment (contingent or otherwise) to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is otherwise bound will not have the effect of limiting the Company's


                                       12


<PAGE>

ability to use such net operating losses in full to offset such taxable income.
The Company and each Subsidiary has withheld or collected from each payment made
to each of its employees, the amount of all taxes (including, but not limited
to, federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories. The Company and each Subsidiary has properly charged, collected
and paid all applicable sales, use and other similar taxes.

         SECTION 2.17 AGREEMENTS.

         (a) None of the Company or its Subsidiaries is a party to or otherwise
bound by any agreement, instrument, commitment or restriction which individually
or in the aggregate could result in a Material Adverse Change. Except as set
forth in SCHEDULE 2.17, none of the Company or its Subsidiaries is a party to,
or is it or any of its assets or properties bound by, any :

                  (i) distributor, dealer, manufacturer's representative or
sales agency agreement which is not terminable on less than ninety (90) days
notice without cost or other liability to the Company or its Subsidiaries;

                  (ii) agreement with any labor union or collective bargaining
agreement;

                  (iii) agreement with any supplier containing any provision
permitting any party other than the Company or its respective Subsidiary to
renegotiate the price or other terms, or containing any pay-back or other
similar provision, upon the occurrence of a failure by the Company or its
respective Subsidiary to meet its obligations under the agreement when due or
the occurrence of any other event;

                  (iv) agreement for the future purchase of fixed assets or for
the future purchase of materials, supplies, services or equipment in excess of
the normal operating requirements of the Company and its Subsidiaries or at an
excessive price, or any agreement that will result in a loss to the Company or
any Subsidiary upon completion of performance;

                  (v) agreement for the employment of any officer, employee or
other Person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time, part-time or consulting basis which is not
terminable on notice without cost or other liability to the Company or its
Subsidiaries;

                  (vi) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock bonus or option or other plan,
agreement or understanding pursuant to which benefits are provided to any
employees, officers, directors, consultants, advisors, agents, stockholders or
representatives of the Company or its Subsidiaries;

                  (vii) loan agreement, credit agreement, promissory note,
indenture, subordination agreement, letter of credit or other agreement relating
to the borrowing of money or to the mortgaging or pledging of, or otherwise
placing a lien or security interest on, any asset of the Company or its
Subsidiaries;

                  (viii) guaranty of any obligation for borrowed money or
otherwise;


                                       13


<PAGE>

                  (ix) voting trust or agreement, stockholders' agreement,
pledge agreement, buy-sell agreement, first refusal or preemptive rights
agreement relating to any securities of the Company or its Subsidiaries;

                  (x) acquisition, sale or lease agreement outside of the
ordinary course of business of the Company or its Subsidiaries;

                  (xi) partnership or joint venture agreement;

                  (xii) agreement (A) which prohibits or requires consent for
(1) a Change of Control or merger of the Company or any Subsidiary, (2) the sale
of all or substantially all of the assets of the Company or any Subsidiary, (3)
the transfer or issuance of any securities of the Company or any Subsidiary, or
(4) the assignment, subletting or other transfer of the rights under such
agreement, or (B) which terminates, is subject to termination, is materially and
adversely affected or is subject to being materially and adversely affected as a
result of the occurrence of any event described in subsection (A) hereof;

                  (xiii) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company or any
Subsidiary has advanced or agreed to advance money or has agreed to lease any
property as lessee or lessor;

                  (xiv) agreement or obligation (contingent or otherwise) to
issue, sell, transfer, assign or otherwise distribute or dispose of, repurchase,
redeem or otherwise acquire, or retire any shares of its capital stock or any of
the other equity securities of the Company or any Subsidiary;

                  (xv) assignment, license or other agreement with respect to
any form of intangible property;

                  (xvi) agreement under which the Company has granted any Person
any registration rights;

                  (xvii) agreement under which the Company or any Subsidiary has
limited or restricted its right to operate or to compete with any Person in any
respect;

                  (xviii) agreement, or group of related agreements with the
same party, involving more than $10,000.00 or continuing over a period of more
than six (6) months from the date or dates thereof (including renewals or
extensions optional with another party), which agreement or group of agreements
is not terminable by the Company or a Subsidiary, as applicable, without penalty
upon notice of thirty (30) days or less, or any agreement not made in the
ordinary course of business;

                  (xix) agreement with any federal, state, municipal or other
governmental body, department, commission, board, bureau, agency or
instrumentality, domestic or foreign;

                  (xx) agreement, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission (the "COMMISSION") as an exhibit to a registration statement filed on
Form S-1 if the Company were registering securities under the Securities Act;


                                       14


<PAGE>

                  (xxi) confidentiality agreement or standstill agreement;

                  (xxii) agreement with any current or former officer or
director of the Company or any Subsidiary, or any "affiliate" or "associate" of
such persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act;

                  (xxiii) any material agreement with any current or former
stockholder;

                  (xxiv) any other agreement material to the business of the
Company or any Subsidiary, regardless of the dollar value of the amounts
receivable by or payment obligations of the Company or any Subsidiary
thereunder; or

                  (xxv) binding commitment or agreement to enter into any of the
foregoing.

         (b) The Company or Subsidiary, as applicable, and, to the best of the
Company's knowledge, each other party thereto: (i) have performed all the
obligations required to be performed by them to date (or each non-performing
party has received a valid, enforceable and irrevocable written waiver with
respect to its non-performance), and (ii) have received no notice of default and
are not in default (or, with due notice or lapse of time or both, would be in
default) under any agreement, contract, license, understanding, evidence of
indebtedness, note, indenture, instrument, commitment, plan or arrangement to
which the Company or such Subsidiary is a party or by which it or its property
or assets may be bound. None of the Company or its Subsidiaries has a present
expectation or intention of terminating or not fully performing all its
obligations under any agreement, contract, license, understanding, evidence of
indebtedness, note, indenture, instrument, commitment, plan or arrangement, and
the Company has no knowledge of any breach or anticipated breach by the other
party to any agreement, contract, license, understanding, evidence of
indebtedness, note, indenture, instrument, commitment, plan or arrangement to
which the Company or any Subsidiary is a party.

         (c) No previous or current party to any agreement or contract listed in
SCHEDULE 2.17 has given written notice to the Company or any Subsidiary of, or
made any claim with respect to, a desire or intention to exercise any optional
termination, cancellation or acceleration right thereunder, and the Company has
no knowledge of any notice of, or claim with respect to, any such desire or
intention. None of the Company or its Subsidiaries has and, to the Company's
knowledge, no other party to any agreement or contract listed in SCHEDULE 2.17
has, granted or been granted any waiver or indulgence under any such agreement
or contract or repudiated any provision thereof. The Company has delivered or
otherwise made available to the Purchaser true, correct and complete copies (or
summaries of any oral agreements) of each of the agreements listed in SCHEDULE
2.17, together with all amendments, modifications, supplements or side letters
affecting the obligations of any party thereunder. Each of these agreements is
valid and enforceable against the Company or its respective Subsidiary, as
applicable, in accordance with its terms.

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


                                       15


<PAGE>

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

         SECTION 2.20 CUSTOMERS AND SUPPLIERS. SCHEDULE 2.20 sets forth a
complete list of all significant customers and suppliers of the Company and each
Subsidiary. Except as set forth in SCHEDULE 2.20, no customer or supplier which
is significant to the Company or any Subsidiary, has terminated or breached,
materially reduced or threatened to terminate, breach or materially reduce its
purchases from or provision of products or services to the Company or any of its
Subsidiaries.

         SECTION 2.21 APPROVALS. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Article III hereof, no registration
or filing with, or consent or approval of or other action by, any federal, state
or other governmental agency or instrumentality or any third party is or will be
necessary for the Company's valid execution, delivery and performance of the
Transaction Documents, the issuance, sale and delivery of the Preferred Shares
or, upon conversion thereof, the Company's issuance and delivery of the
Conversion Shares, other than those (i) which have previously been obtained or
made, (ii) which are required to be obtained from stockholders at the
stockholder vote to be held in connection with the approval of the transactions
contemplated by the Transaction Documents, (iii) which are required to be made
under federal or state securities laws, which will be obtained or made, and will
be effective within the time periods required by law, or (iv) which are required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR ACT").

         SECTION 2.22 OFFERING OF THE PREFERRED SHARES. Assuming the accuracy of
the Purchaser's representations and warranties set forth in Article III hereof,
the Company has complied with all applicable federal and state securities laws
in connection with the offer, issuance and sale of the Preferred Shares and any
Dividend Shares and, upon conversion thereof, the issuance and delivery of the
Conversion Shares. Neither the Company nor any Person authorized or employed by
the Company as agent, broker, dealer or otherwise in connection with the
offering or sale of the Preferred Shares, the Dividend Shares and the Conversion
Shares or any security of the Company similar to the Preferred Shares, the
Dividend Shares or the Conversion Shares has offered the Preferred Shares, the
Dividend Shares, the Conversion Shares or any such similar security for sale to,
or solicited any offer to buy the Preferred Shares, the Dividend Shares, the
Conversion Shares or any such similar security from, or otherwise approached or
negotiated with respect thereto with, any Person or Persons other than the
Purchaser. Neither the Company nor any Person acting on its behalf has taken or
will take any other action (including, without limitation, any offer, issuance
or sale of any security of the Company under circumstances which might require
the integration of such security with the Preferred Shares, the Dividend Shares
or the Conversion Shares under the Securities Act or the rules and regulations
of the Commission promulgated thereunder), in either case so as to subject the
offering, issuance or sale of the Preferred Shares, the Dividend Shares and the
Conversion Shares to the registration provisions of the Securities Act. Neither
the Company nor any Person acting on its behalf has offered the Preferred Shares


                                       16


<PAGE>

or the Conversion Shares to any Person by means of general or public
solicitation or general or public advertising, such as by newspaper or magazine
advertisements, by broadcast media, or at any seminar or meeting whose attendees
were solicited by such means.

         SECTION 2.23 OFFERING EXEMPTION. Assuming the accuracy of the
Purchaser's representations and warranties set forth in Article III hereof, the
offer, issuance and sale of the Preferred Shares and any Dividend Shares and,
upon conversion thereof, the issuance and delivery of the Conversion Shares, are
exempt from registration under the Securities Act, and will be registered or
qualified (or exempt from registration or qualification) under applicable state
securities and "blue sky" laws, as currently in effect.

         SECTION 2.24 BROKERS; FINANCIAL ADVISORS. Except as set forth in
SCHEDULE 2.24, no agent, broker, investment banker, finder, financial advisor or
other Person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee from the Company or its Subsidiaries, directly or
indirectly, in connection with the transactions contemplated by the Transaction
Documents, and no Person is entitled to any fee or commission or like payment
from the Company or its Subsidiaries in respect thereof based in any way on
agreements, arrangements or understandings made by or on behalf of the Company
or any Subsidiary.

         SECTION 2.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.25, no employee, officer, director, consultant, advisor, agent,
stockholder or representative of the Company or any Subsidiary, or member of the
family of any such Person, or any corporation, limited liability company,
partnership, trust or other entity in which any such Person, or any member of
the family of any such Person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than three percent (3%) of the
outstanding capital stock thereof, is a party to any transaction with the
Company or any Subsidiary, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by, rental
of real or personal property from or otherwise requiring payments to any such
Person, other than employment-at-will arrangements in the ordinary course of
business. To the Company's knowledge, none of the Persons described in this
Section 2.25 has any direct or indirect ownership interest in any Person with
which the Company or any Subsidiary is affiliated or with which the Company or
any Subsidiary has a business relationship, or any Person that competes with the
Company or any Subsidiary.

         SECTION 2.26 EMPLOYEES.

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

         (b) SCHEDULE 2.26(b) sets forth a true and complete list of (i) the
names of the officers of the Company and each Subsidiary, together with the
title or job classification of each such Person and the total compensation
anticipated to be paid to each such Person by the Company and/or any Subsidiary
during calendar year 2005, (ii) the name and amount of annual compensation of
each employee of the Company and each Subsidiary, together with such employee's


                                       17


<PAGE>

job title and amounts and forms of compensation and fringe and severance
benefits, and (iii) the name and amount of annual compensation of each
consultant, contractor or subcontractor equivalent of the Company and each
Subsidiary for which a Form 1099 has been, or will be, filed. Except as provided
on SCHEDULE 2.26(B), none of these individuals has an employment agreement or
understanding with the Company or any Subsidiary, whether oral or written, which
is not terminable on notice by the Company or such Subsidiary without cost or
other liability to the Company or such Subsidiary.

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

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

         (e) SCHEDULE 2.26(e) sets forth all written employment agreements to
which the Company or any Subsidiary is a party, each of which is legal, valid,
binding and enforceable. To the best of the Company's knowledge, no employee of
or consultant to the Company or any Subsidiary is in violation of any material
term of any employment contract or any other contract or agreement relating to
the relationship of any such employee or consultant with the Company or such
Subsidiary.

         SECTION 2.27 ENVIRONMENTAL AND SAFETY LAWS.

         (a) The Company and each Subsidiary, the operations of their
businesses, and any real property that the Company or any Subsidiary owns,
leases or otherwise occupies complies and has at all times complied with all
federal, state and local laws, judgments, decrees, orders, consent agreements,
authorizations, permits, licenses, rules, regulations, common or decision law
(including, without limitation, principles of negligence and strict liability)
relating in any way to the protection, investigation or restoration of the
environment (including, without limitation, natural resources), the generation,
use, handling, transportation or disposal of Hazardous Materials or the health
or safety matters of humans and other living organisms, including the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental


                                       18


<PAGE>

Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Federal Clean Water
Act, as amended, the Federal Clean Air Act, as amended, the Toxic Substances
Control Act, the Emergency Planning and Community Right-to-Know Act or any state
and local analogue (hereinafter "ENVIRONMENTAL LAWS"). No expenditures are
presently required to comply with any such applicable Environmental Laws.

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

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

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

         (e) The execution, delivery and performance of this Agreement is not
subject to any Environmental Laws which condition, restrict or prohibit the
sale, lease or other transfer of property or operations, including any so-called
"environmental cleanup responsibility acts" or requirements for the transfer of
permits, approvals, or licenses. To the Company's knowledge, there have been no
environmentally related audits, studies, reports, analyses (including soil and
groundwater analyses), or investigations of any kind performed with respect to
the currently or previously owned, leased, or operated properties of the Company
or its Subsidiaries except as set forth in Schedule 2.27(e).


                                       19


<PAGE>

         SECTION 2.28 EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS.

         (a) Set forth in SCHEDULE 2.28(a) is a list of each employee benefit
plan (whether or not within the meaning of ss. 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), multiemployer plan (within
the meaning of ERISA ss.ss. 3(37) or 4001(a)(3) (a "MULTIEMPLOYER
PLAN")),written or oral employment or consulting agreement, change in control
agreement, severance pay plan or agreement, employee relations policy (or
practice, agreement or arrangement), agreements with respect to leased or
temporary employees, vacation plan or arrangement, sick pay plan, stock purchase
plan, stock option plan, fringe benefit plan, incentive plan, bonus plan,
cafeteria or flexible spending account plan and any deferred compensation
agreement (or plan, program, or arrangement) covering any present or former
employee of the Company and which is, or at any time during the six year period
preceding the Closing Date was, sponsored or maintained by (or to which
contributions are, or at any time during the six year period preceding the
Closing Date were, or were required to have been, made by) either (1) the
Company, or (2) any other organization which together with the Company is
treated as a single employer under ERISA ss.4001 or Code ss.414 (an "ERISA
AFFILIATE"). Each and every such plan, program, policy, practice, arrangement
and agreement is hereinafter referred to as a "BENEFIT PLAN."

         (b) There has been delivered to the Buyer (i) current, accurate and
complete copies of each Benefit Plan (including any amendments thereto), trust
agreement, insurance or annuity contract, and all summary plan descriptions,
summaries of material modification, general notices to employees or
beneficiaries and other material agreements, documents or instruments relating
thereto; (ii) the most recent audited financial statement with respect to each
Benefit Plan required to have an audited financial statement; (iii) copies of
the most recent determination letters with respect to any Benefit Plan which is
intended to qualify under the Code ss. 401(a) (a "QUALIFIED PLAN"); and (iv)
copies of the three most recent annual reports (Forms 5500) with respect to each
Benefit Plan required to file an annual report.

         (c) With respect to each Benefit Plan, (i) the Company and each ERISA
Affiliate has complied in all material respects with all provisions of such
plan, ERISA, the Code and other applicable laws and regulations, and no act or
omission by the Company, any ERISA Affiliate, or any fiduciary of any such plan
has occurred, no event has occurred and no condition exists that will or could
be expected to give rise to liability for a breach of fiduciary responsibilities
under ERISA, or to any fines, penalties, excise taxes, corrective payments,
fees, sanctions or other payments under ERISA, the Code or other applicable laws
or regulations; (ii) each such plan which is a pension plan, within the meaning
of ERISA ss.(3)(2), is a Qualified Plan and has received from the IRS within the
last three years a favorable determination letter, and no event has occurred
that could give rise to disqualification or loss of tax-exempt status of any
such plan or related trust; (iii) each such plan which is an "employee welfare
benefit plan" within the meaning of Section 3(1) of ERISA is funded through an
insurance company contract; (iv) each such plan which is a "group health plan"
(within the meaning of ERISA ss.607(1) or Code ss.5000(b)(1)) has been operated
at all times in compliance with the Health Insurance Portability and
Accountability Act of 1996 and the continuation coverage provisions described in
Code ss.4980B, ERISA ss.ss.601 through 608, and any similar provisions under


                                       20


<PAGE>

applicable state law; (v) no such plan provides for any post-employment life,
medical, dental or other welfare benefits (whether or not insured) for any
current or former employee except as required under Code ss.4980B, ERISA
ss.ss.601 through 608 or applicable state or local law; (vi) there are no
investigations, applications or other matters initiated by the Company or by any
governmental agency that are pending before the IRS, the United States
Department of Labor or any other federal, state or local governmental agency;
(vii) there have been no claims or notice of claims filed under any fiduciary
liability insurance policy, fiduciary bond or indemnification agreement covering
any such plan, or any fiduciary with respect to such plan; (viii) there are no
actions, investigations, suits or claims (other than routine claims for benefits
in the ordinary course) pending or threatened, and there are no facts which
could give rise to any such actions, investigations, suits or claims (other than
routine claims for benefits in the ordinary course), which could subject either
the Company or any Affiliate to any liability; (ix) all contributions, insurance
and annuity premiums and salary deferrals elected by an employee or required to
have been made by the Company or any ERISA Affiliate under law or under the
terms of any Benefit Plan for all complete and partial periods up to and
including the date hereof have been made, will be made to the appropriate plan
on or before such date or have been reflected on the Financial Statements; (x)
any compensation payable thereunder to a covered employee within the meaning of
Code ss.162(m)(3) is deductible by the Company as a compensation expense under
Code ss.162; (xi) no such plan directly or indirectly extends, maintains,
arranges or renews credit to or for any officer or director; (xii) none of the
Company, any ERISA Affiliate or any other person has engaged in a prohibited
transaction (within the meaning of Code ss.4975 or ERISA ss.406) which could
subject either the Company or any ERISA Affiliate to any taxes, penalties or
other liabilities resulting from prohibited transactions under Code ss.4975 or
under ERISA ss.ss.409 or 502(i); and (xiii) neither the Company nor any ERISA
Affiliate currently sponsors, maintains or is obligated to contribute to, and at
no time during the last six years, has sponsored, maintained or been obligated
to contribute to, any Benefit Plan, including a Multiemployer Plan, subject to
Title IV of ERISA or Code ss. 412.

         (d) The events contemplated by this Agreement (either alone or together
with any other event) will not (i) entitle any employees to severance pay,
unemployment compensation, or other similar payments under any Benefit Plans or
Law applicable to the Company or any Subsidiary, (ii) accelerate the time of
payment or vesting or increase the amount of benefits due under any Benefit Plan
or compensation to any employees of the Company or any Subsidiary, or (iii)
result in any payments under any Benefit Plan or Law applicable to the Company
or any Subsidiary becoming due to any employee.

         (e) The Company and each ERISA Affiliate may, in any manner, subject to
the limitations imposed by applicable law and reasonable notice provisions under
the applicable Benefit Plan, and without the consent of any employee,
beneficiary or other person, prospectively terminate, modify or amend any such
Benefit Plan or any other plan, program or practice (or its participation in
such Benefit Plan or any other plan, program or practice) effective as of any
date on or after the date hereof; and no representations or communications
(directly or indirectly, orally, in writing or otherwise) with respect to
participation, eligibility for benefits, vesting, benefit accrual coverage or
other material terms of any Benefit Plan have been made prior to the Closing
Date to any employee, beneficiary or other person other than those which are in
accordance with the terms and provisions of each such Plan as in effect
immediately prior to the Closing Date.


                                       21


<PAGE>

         SECTION 2.29 FOREIGN CORRUPT PRACTICES ACT; USA PATRIOT ACT. None of
the Company, its Subsidiaries or, to the best of the Company's knowledge, any
employees, officers, directors, consultants, advisors, agents, stockholders or
representatives of the Company or other Person acting on behalf of the Company
or any Subsidiary, has violated, or taken any action which would cause the
Company to be in violation of, the Foreign Corrupt Practices Act of 1977, as
amended (the "FCPA"), or the USA Patriot Act, or any rules and regulations
thereunder. Each of the Company's and its Subsidiaries' internal management and
accounting practices and controls are adequate to ensure compliance with the
FCPA and the USA Patriot Act. There is not now, and there has never been, any
employment by the Company or any Subsidiary of, or beneficial ownership in the
Company or any Subsidiary by, any governmental or political official in any
country in the world.

         SECTION 2.30 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS.
None of the Company, its Subsidiaries or, to the best of the Company's
knowledge, any employees, officers, directors, consultants, advisors, agents,
stockholders or representatives of the Company or other Person acting on behalf
of the Company or any Subsidiary has, directly or indirectly, made or authorized
any payment, contribution or gift of money, property, or services, in
contravention of applicable law: (a) as a kickback or bribe to any Person, or
(b) to any political organization, or the holder of or any aspirant to any
elective or appointive public office, except for personal political
contributions not involving the direct or indirect use of the Company's or any
Subsidiary's funds.

         SECTION 2.31 PENDING CHANGES. To the Company's knowledge, there is no
pending or threatened change in any Law, rule, regulation or order applicable to
its business, operations, properties, assets, products and services which is
likely to result in a Material Adverse Change. To the best of the Company's
knowledge, there has been no discovery, change or development in the
development, design, manufacture or marketing of any product or service or
proposed product or service of the Company or any Subsidiary, or any product or
service that is or may be competitive with any such product or service or of any
new or improved materials, products, services or processes useful in the
business or the proposed business of the Company or any Subsidiary, to which an
informed investor in the Company would attach importance in its decision to make
an investment in the Company.

         SECTION 2.32 INVESTMENT COMPANY ACT. The Company is not, nor is it
directly or indirectly controlled by or acting on behalf of, any Person that is
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

         SECTION 2.33 REGISTRATION RIGHTS. Except for as set forth in SCHEDULE
2.33 and the rights granted to the Purchaser under the Registration Rights
Agreement, no Person has demand or other rights to cause the Company to file any
registration statement under the Securities Act relating to any securities of
the Company or any right to participate in any such registration statement,
including, without limitation, piggyback registration rights.

         SECTION 2.34 BOOKS AND RECORDS. Each of the Company's and its
Subsidiaries' books of account, ledgers, order books, records and documents
accurately and completely reflect in accordance with usual and customary prudent
business practices all material information relating to the Company's or
Subsidiary's, as appropriate, business, the location and collection of the
Company's or Subsidiary's, as appropriate, assets, and the nature of all


                                       22


<PAGE>

transactions giving rise to the Company's or Subsidiary's, as appropriate,
obligations and accounts receivable. The Company has previously delivered to the
Purchaser and its counsel complete and correct copies of the Amended Charter and
Bylaws and all amendments thereto, as in effect at the time of the Closing and
all minutes and consents reflecting meetings and actions taken by the Company's
Board of Directors (the "BOARD") and stockholders. Such minutes and consents
constitute complete and accurate records of all meetings and consents in lieu of
meetings of the Board and its committees, or body performing a similar function
and holders of its securities since its date of incorporation or formation.

         SECTION 2.35 DISCLOSURE.

         (a) The Company has disclosed to the Purchaser all facts material to
the business, operations, assets, liabilities, prospects, properties, condition
(financial or otherwise) and results of operations of the Company and each
Subsidiary. None of this Agreement, or any Schedule or Exhibit to this
Agreement, or any other Transaction Documents or statements, documents or
agreements filed by the Company with the Commission pursuant to the requirements
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or any
other statements, documents or certificates made or delivered in connection
herewith or therewith contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein and
therein not misleading in light of the circumstances under which such statements
were made. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein not
misleading in light of the circumstances under which such statements were made.
There is no fact which the Company has not disclosed to the Purchaser and its
counsel in writing and of which the Company is aware which has resulted in, or
could result in, a Material Adverse Change or a material adverse effect on the
ability of the Company to perform its obligations under the Transaction
Documents. The Company has filed with the Commission, within the applicable
timeframes, all statements, documents and agreements required to be filed
pursuant to the Exchange Act and the rules and regulations of the Commission
thereunder. All such statements, documents and agreements, at the times they
were filed with the Commission, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder. The financial projections and other estimates provided to the
Purchaser were prepared by the Company based on the Company's experience in the
industry and on assumptions of fact and opinion as to future events which the
Company, at the date of the issuance of the financial projections, believed to
be reasonable and which the Company currently believes are reasonable. As of the
date hereof, no facts have come to the Company's attention that would, in its
opinion, require the Company to revise or amplify the assumptions underlying
such projections and other estimates or the conclusions derived therefrom.

         (b) All representations, warranties, covenants and agreements set forth
or delivered in connection with this Agreement shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby as provided in Section 6.02 hereof and shall not be affected by any
examination made by, for or on behalf of, the Purchaser, the knowledge of the
Purchaser or the Purchaser's acceptance of any certificate or opinion.


                                       23


<PAGE>

                                  ARTICLE III.

           REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER

         SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company that:

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

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

         (c) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely (subject, however, to
the Company's obligation to redeem the Preferred Shares in accordance with the
terms thereof, and to the Company's obligation to effect the registration of
registrable securities in accordance with the Registration Rights Agreement)
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration, and (iii) the Preferred Shares and the
Conversion Shares will bear the legend to such effect set forth in Section 3.03
hereof.

         SECTION 3.02 RESTRICTED SECURITIES. The Purchaser agrees not to make
any disposition of all or any portion of the Preferred Shares or the Conversion
Shares unless and until such securities are registered under the Securities Act
and under any other applicable securities laws or such sale or transfer is
exempt from such registration.

         SECTION 3.03 LEGEND. The Purchaser acknowledges that the certificates
evidencing the Preferred Shares and the Conversion Shares will bear the legend
set forth below:

         THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
         LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
         TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
         AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
         PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.

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


                                       24


<PAGE>

                                  ARTICLE IV.

         CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AND THE COMPANY

         SECTION 4.01 CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT THE CLOSING.
The Purchaser's obligation to purchase and pay for the Preferred Shares on the
Closing Date is, at its option, subject to the satisfaction, on or before such
Closing Date, of the following conditions, any of which may be waived in whole
or in part by the Purchaser:

         (a) OPINION OF COMPANY'S COUNSEL. The Purchaser shall have received
from Rutan & Tucker LLP, counsel for the Company, an opinion dated the Closing
Date, in form and scope satisfactory to the Purchaser and its counsel, in the
form set forth in EXHIBIT C.

         (b) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company under this Agreement and in each
other Transaction Document shall be true, complete and correct on and as of the
Closing Date, with the same effect as though such representations and warranties
had been made on and as of such date, and the Company's Chief Executive Officer
shall have certified to such effect to the Purchaser in writing.

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

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

         (e) APPROVALS; NO VIOLATION OF LAW. The Company shall have obtained any
and all consents, waivers, approvals or authorizations, with or by any
governmental body and all consents, waivers, approvals or authorizations of any
other Person, including stockholder approval, required for the valid execution
of this Agreement and each of the other Transaction Documents and for the
consummation of the transactions contemplated hereby and thereby, and the
purchase and payment of the Preferred Shares at the Closing Date on the terms
and conditions as provided herein shall not violate any Law applicable to the
Company or the Purchaser.

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


                                       25


<PAGE>

         (g) HSR ACT FILINGS. Any waiting period under the HSR Act applicable to
the transactions contemplated hereby, shall have expired or been terminated.

         (h) REGISTRATION RIGHTS AGREEMENT; DEPOSIT AGREEMENT; VOTING LETTERS.
The Company and the other parties named therein shall have executed and
delivered the Registration Rights Agreement and the Deposit Agreement and each
executive officer and director of the Company and each executive officer,
director and manager of each of its Subsidiaries shall have executed and
delivered a Voting Letter.

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

         (j) STOCK OPTION PLANS. The Company's Amended 1995 Incentive Stock Plan
set forth in Exhibit D attached hereto, and 2004 Stock Option Plan set forth in
Exhibit E attached hereto (the "Stock Option Plans"), shall be the Company's
only stock option plans and shall not have been amended or modified in any way
since the date of this Agreement.

         (k) QUALIFICATION UNDER STATE SECURITIES LAWS. All registrations,
qualifications, permits and approvals required prior to issuance under
applicable state securities laws shall have been obtained for the lawful
execution, delivery and performance of this Agreement and each of the other
Transaction Documents, including without limitation, the offer, sale, issuance
and delivery of the Preferred Shares to be purchased hereunder.

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

         (m) APPOINTMENT OF DIRECTORS. The number of directors constituting the
entire Board of Directors shall have been fixed at seven and the Purchaser's
designees shall have been appointed as directors and as Chairman of the
Compensation Committee of the Board of Directors in accordance with the
Registration Rights Agreement.

         (n) PREEMPTIVE RIGHTS. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Preferred Shares, the Dividend Shares or the Conversion Shares shall have
irrevocably waived the same in writing.

         (o) EXPENSES. The Company shall have paid the fees and expenses of the
Purchaser, including the fees and disbursements of the Purchaser's counsel
invoiced at the Closing, in accordance with Section 7.01 hereof.

         (p) SUPPORTING DOCUMENTS. The Purchaser and its counsel shall have
received copies of the following documents:

                  (i) (A) the Amended Charter (including the Certificate of
Designations of the Preferred Shares), certified as of a recent date by the
Secretary of State of the State of Delaware, and (B) a certificate of said
Secretary dated as of a recent date as to the Company's due incorporation and
good standing and the Company's payment of all excise taxes, and listing all
documents of the Company on file with said Secretary;


                                       26


<PAGE>

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

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

         (q) CROSS-RECEIPT. The Company and the Purchaser shall have executed
and delivered a cross-receipt acknowledging the Company's delivery to the
Purchaser of the Preferred Shares and the Purchaser's payment therefor.

         (r) NO ACCELERATION OF VESTING, ETC. Neither the Board nor any
committee responsible for the administration of options or warrants of the
Company shall have made any determination that could result in the acceleration
of the vesting or rights to exercise options or warrants or cause an accelerated
pay-out of any such options.

         (s) SETTLEMENT AGREEMENT. The Settlement Agreement, dated November 1,
2005 ("Settlement Agreement"), among the Company, Cagan-McAfee Capital Partners,
LLC ("CMCP") and Chadbourn Securities, Inc. ("Chadbourn"), (i) shall be in full
force and effect and (ii) shall not have been modified, amended or supplemented
without the express written consent of the Purchaser. All amounts payable by the
Company under the Settlement Agreement shall have been paid and CMCP and
Chadbourn shall have executed and delivered a receipt acknowledging such
payment. Except as set forth in the Settlement Agreement, no other agreements or
obligations shall exist between (i) the Company or any of its Subsidiaries and
(ii) CMCP or Chadbourn or any of their Affiliates.

         (t) TERM LOAN AGREEMENT. The Term Loan Agreement, dated as of June 16,
2003 ("LDI Loan Agreement"), between the Company and Lyles Diversified, Inc.
("LDI"), as amended, and the Deed of Trust (Non-Construction) Security Agreement
and Fixture Filing with Assignment of Rents, dated June 20, 2003 (the "Security
Agreement"), between the Company and LDI, shall have been terminated and all
obligations thereunder shall have been satisfied, and LDI shall have provided
the Company with a written release from the Security Agreement, or provisions
satisfactory to the Purchaser shall have been made for such termination,
satisfaction and release. In addition, LDI shall have waived all of its rights
under Section 2.4 of the LDI Loan Agreement or have agreed to an amendment to
Section 2.4 of the LDI Loan Agreement satisfactory to the Purchaser.


                                       27


<PAGE>

         (u) SHARE EXCHANGE AGREEMENT. The Share Exchange Agreement, dated as of
May 14, 2004, among Accessity Corp., the predecessor of the Company, Pacific
Ethanol, Inc., a California corporation, Reenergy, LLC, Kinergy Marketing, LLC
and certain other persons named therein, shall have been amended to provide or
clarify that neither the issuance of the Preferred Shares, the Dividend Shares
nor the Conversion Shares nor the execution, delivery or performance of the
Transaction Documents shall violate the provisions of Section 14.5 thereof.

         (v) MADERA PLANT. Subsidiaries of the Company shall have executed and
delivered agreements in form and substance satisfactory to the Purchaser
relating to the construction, operation and financing of the Madera ethanol
production facility and the Schedules to this Agreement shall have been amended
to reflect such agreements.

         (w) OUTSIDE DATE. The Closing shall occur on or before March 31, 2006
unless the Purchaser shall have consented in writing to the Closing occurring on
or prior to a later date as specified in writing by the Purchaser to the
Company.

All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.

         SECTION 4.02 CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING.
The Company's obligation to sell and issue the Preferred Shares being sold and
issued by it on the Closing Date is, at its option, subject to the satisfaction,
on or before such Closing Date, of the following conditions, any of which may be
waived in whole or in part by the Company:

         (a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Purchaser contained in Article III shall
be true, complete and correct on and as of the Closing Date, with the same
effect as though such representations and warranties had been made on and as of
such date.

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

         (c) CROSS RECEIPT. The Company and the Purchaser shall have executed
and delivered a cross-receipt acknowledging the Company's delivery to the
Purchaser of the Preferred Shares and the Purchaser's payment therefor.

         (d) PURCHASE PRICE PAID. The Purchaser shall have paid the purchase
price for the Preferred Shares to the Company as set forth in Section 1.02(a)
hereof.

         (e) STOCKHOLDER APPROVAL. The Company shall have obtained stockholder
approval for this Agreement and the transactions contemplated hereby, including
(i) the issuance of the Preferred Shares to the Purchaser, (ii) the issuance of
the Dividend Shares and (iii) the issuance of Common Stock upon conversion of
the Preferred Shares and Dividend Shares.


                                       28


<PAGE>

                                   ARTICLE V.

                            COVENANTS OF THE COMPANY

         The Company covenants and agrees with the Purchaser that:

         SECTION 5.01 RESERVE FOR CONVERSION SHARES. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and any Dividend Shares and otherwise complying with the terms of this
Agreement, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the conversion of the Preferred Shares and any Dividend
Shares from time to time outstanding or otherwise to comply with the terms of
this Agreement. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of the Preferred
Shares and any Dividend Shares or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or governmental or administrative body that may be
required under applicable state securities laws in connection with the issuance
of shares of Common Stock upon conversion of the Preferred Shares and any
Dividend Shares.

         SECTION 5.02 CORPORATE EXISTENCE. The Company shall preserve and
maintain, and, except as otherwise permitted by Section 5.16, cause each
Subsidiary to preserve and maintain, its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
or lease of its properties.

         SECTION 5.03 PRESERVATION OF PROPERTY AND ASSETS. The Company shall,
and shall cause each of its Subsidiaries to (a) maintain or cause to be
maintained in good repair, working order and condition the properties now or
hereafter owned, leased or otherwise possessed by it (and make or cause to be
made all needed and proper repairs, renewals, replacements and improvements
thereto) which are necessary so that the business carried on in connection
therewith may be properly conducted at all times and (b) maintain and hold in
full force and effect all franchises, licenses, permits, certificates,
authorizations, qualification, accreditations and other rights, consents and
approvals (whether issued, made or given by a governmental body or otherwise),
necessary to own and operate its properties and to carry on its business as
presently conducted and as presently planned to be conducted. The Company shall
not cause or permit a Release of any Hazardous Material on, at, in, under,
above, to, from or about any of the property where such Release would violate in
any respect, or form the basis for any claims under, any Environmental Laws.


                                       29


<PAGE>

         SECTION 5.04 PROPERTIES, BUSINESS, INSURANCE. The Company shall obtain
and maintain and cause each of its Subsidiaries to maintain as to its respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated.

         SECTION 5.05 DIRECTORS AND OFFICERS INSURANCE. The Company will obtain
and maintain directors and officers liability insurance acceptable to the
Purchaser and will at all times exercise the powers granted to it by its Amended
Charter, its Bylaws, and by applicable law to indemnify and hold harmless to the
fullest extent permitted by applicable law present or former directors and
officers of the Company against any threatened or actual claim, action, suit,
proceeding or investigation made against them arising from their service in such
capacities (or service in such capacities for another enterprise at the request
of the Company).

         SECTION 5.06 INSPECTION, CONSULTATION AND ADVICE. The Company shall
permit, and cause each of its Subsidiaries to permit, the Purchaser and such
persons as it may designate to visit and inspect any of the properties of the
Company or its Subsidiaries, examine their books and take copies and extracts
therefrom, discuss the affairs, finances and accounts of the Company or its
Subsidiaries with their officers, employees and public accountants (and the
Company hereby authorizes said accountants to discuss with the Purchaser and
such designees such affairs, finances and accounts), and consult with and advise
the management of the Company and its Subsidiaries as to the Company's and its
Subsidiaries' affairs, finances and accounts.

         SECTION 5.07 RESTRICTIVE AGREEMENTS PROHIBITED. None of the Company or
its Subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement or any of the other
Transaction Documents.

         SECTION 5.08 TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board, including
the members of the Board nominated and elected by the Purchaser, none of the
Company or its Subsidiaries shall enter into any transaction with any director,
officer, employee or holder of more than three percent (3%) of the outstanding
capital stock of any class or series of capital stock of the Company or any
Subsidiary, member of the family of any such Person, or any corporation,
partnership, trust or other entity in which any such Person, or member of the
family of any such Person, is a director, officer, trustee, partner or holder of
more than three percent (3%) of the outstanding capital stock thereof.


                                       30


<PAGE>

         SECTION 5.09 PAYMENT OF TAXES AND INDEBTEDNESS. The Company shall pay
and discharge, and cause each Subsidiary to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income, profits or business, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the Company or its
Subsidiaries; PROVIDED, HOWEVER, that neither the Company nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested or extended in good faith and by appropriate proceedings if
the Company or such Subsidiary shall have set aside on its books sufficient
reserves, if any, with respect thereto. The Company shall pay and cause any
Subsidiary to pay, when due, or in conformity with customary trade terms, all
lease obligations, all trade debt, and all other indebtedness incident to the
operations of the Company or such Subsidiary, except such as are being contested
in good faith and by proper proceedings if the Company or Subsidiary concerned
shall have set aside on its books sufficient reserves, if any, with respect
thereto.

         SECTION 5.10 INTERNAL ACCOUNTING CONTROLS. The Company shall devise and
maintain systems, and shall cause each of its Subsidiaries to make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions and dispositions of its assets and shall devise and
maintain, and shall cause each of its Subsidiaries to devise and maintain,
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP or any other
criteria applicable to such statements, and to maintain accountability for
assets, (c) access to assets is permitted only in accordance with management's
general or specific authorization, and (d) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

         SECTION 5.11 ACTIVITIES OF SUBSIDIARIES. Except as shall have been
approved in writing by the Purchaser, the Company shall not permit any
Subsidiary to consolidate or merge, or sell or transfer all or substantially all
its assets, except that any Subsidiary may (i) consolidate or merge into or with
or sell or transfer assets to any other Subsidiary of the Company, or (ii) merge
into or sell or transfer assets to the Company. The Company shall not sell,
pledge or otherwise transfer any shares of capital stock of, or membership
interest in, any Subsidiary, or permit any Subsidiary to issue, sell, pledge or
otherwise transfer any shares of its capital stock or membership interests or
the capital stock of, or membership interest in, any Subsidiary, except, in
either case, to the Company or another Subsidiary or except as shall have been
approved in writing by the Purchaser. The Company shall not permit any
Subsidiary to purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of its stock, except for
dividends or other distributions payable to the Company or another Subsidiary.

         SECTION 5.12 STOCKHOLDER APPROVAL. As soon as practicable after the
date hereof, the Company shall use its best efforts to hold a meeting of the
Company's stockholders in compliance with the rules of the Commission regarding
proxies, consents and authorizations of stockholders in Section 14 of the
Exchange Act, and the rules and regulations promulgated thereunder and shall
make all appropriate filings related thereto (including, without limitation, the
filing of any effective proxy statement) with the Commission to give effect
thereto, to approve this Agreement and the transactions contemplated hereby,
including (a) the sale and issuance of the Preferred Shares to the Purchaser,


                                       31


<PAGE>

(b) the issuance of the Dividend Shares, and (c) the issuance the Common Stock
upon conversion of the Preferred Shares and Dividend Shares. The Board of
Directors of the Company shall recommend such approval and shall take all lawful
action to solicit such approval. The Company shall use its best efforts to
deliver to the Purchaser a copy of such proxy statement and any amendments and
supplements thereto at least five days prior to the filing thereof with the SEC.

         SECTION 5.13 CHANGE OF OPERATIONS. The Company shall not, and shall not
permit any of its Subsidiaries to, change the general character of its business
as conducted on the date hereof or as presently proposed to be conducted, or
engage in any type of business not directly related to such business as
presently and normally conducted or as presently proposed to be conducted.

         SECTION 5.14 INDEMNITY.

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

         (b) The provisions of this Section 5.14 shall not limit or impair any
right or remedy arising from breach of this Agreement or any of the other
Transaction Documents. In addition to any other remedy provided by law,
injunctive relief may be obtained to enjoin the breach, or threatened breach, of
any provision of this Agreement and each party shall be entitled to specific
performance by the others of their obligations hereunder and thereunder. All
remedies, either under this Agreement, by law or as may otherwise be afforded to
the Purchaser or the Company, as the case may be, shall be cumulative.

         SECTION 5.15 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each Subsidiary to comply, with all applicable Laws.


                                       32


<PAGE>

         SECTION 5.16 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep, and cause any Subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with GAAP consistently
applied, reflecting all transactions of the Company and each of its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

                                  ARTICLE VI.

                    COVENANT OF THE COMPANY AND THE PURCHASER

         SECTION 6.01 HSR ACT FILINGS. The Company and the Purchaser shall (i)
file or cause to be filed, as promptly as practicable but in no event later than
the tenth (10th) business day after the execution and delivery of this
Agreement, with the Federal Trade Commission and the United States Department of
Justice, all reports and other documents required to be filed by such party
under the HSR Act concerning the transactions contemplated hereby and (ii)
promptly comply with or cause to be complied with any requests by the Federal
Trade Commission or the United States Department of Justice for additional
information concerning such transactions, in each case so that the initial
thirty (30) day waiting period applicable to this Agreement and the transactions
contemplated hereby under the HSR Act shall expire as soon as practicable after
the execution and delivery of this Agreement. The Company and the Purchaser each
agree to request, and to cooperate with the other party in requesting, early
termination of any applicable waiting period under the HSR Act.

                                  ARTICLE VII.

                                  MISCELLANEOUS

         SECTION 7.01 EXPENSES. At the Closing the Company shall reimburse the
Purchaser for all legal and accounting fees and expenses, up to $250,000,
incurred by the Purchaser in connection with the transactions contemplated
hereby. The Company agrees that the fees and expenses incurred by the Purchaser
through the Closing Date in connection with the transactions contemplated hereby
may be paid directly by the Purchaser to such persons and deducted from the
purchase price payable at the Closing. In the event that the Closing shall not
occur and the Preferred Shares are not sold to the Purchaser, the Company agrees
to reimburse the Purchaser for all legal and accounting fees up to $100,000. The
Company shall pay all costs and expenses that it incurs in connection with the
transactions as well as any fees or expenses incurred in connection with any
filing pursuant to the HSR Act. The Company further agrees to reimburse the
Purchaser on demand for the Purchaser's reasonable out of pocket expenses
incurred in connection with any amendment to, or waiver or enforcement of, this
Agreement or the other Transaction Documents. The Company shall also pay all
stamp and other taxes and duties levied in connection with the issuance of the
Preferred Shares and any Dividend Shares or, upon conversion thereof, the
Conversion Shares.


                                       33


<PAGE>

         SECTION 7.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made in any of the Transaction Documents or any
certificate or instrument delivered to the Purchaser pursuant to or in
connection with any of the Transaction Documents shall survive the execution and
delivery of all of the Transaction Documents, the issuance, sale and delivery of
the Preferred Shares, and the issuance and delivery of the Conversion Shares,
and all statements contained in any certificate or other instrument delivered by
the Company hereunder or thereunder or in connection herewith or therewith shall
be deemed to constitute representations and warranties made by the Company.

         SECTION 7.03 BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to the Transaction Documents or to the transactions
contemplated thereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.

         SECTION 7.04 PARTIES IN INTEREST. All representations, warranties,
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
Without limiting the generality of the foregoing, all representations, covenants
and agreements benefiting the Purchaser shall inure to the benefit of any and
all subsequent holders from time to time of Preferred Shares or Conversion
Shares, as the case may be. Nothing in this Agreement shall create or be deemed
to create any third-party beneficiary rights in any Person other than the
parties to this Agreement or their respective successors and assigns except as
expressly provided in this Agreement.

         SECTION 7.05 SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that the breach of this Agreement would cause
irreparable damage to the other party hereto and that the other party hereto
will not have an adequate remedy at law. Therefore, the obligations of each of
the parties hereto under this Agreement shall be enforceable by a decree of
specific performance issued by any court of competent jurisdiction, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies, however, shall be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.

         SECTION 7.06 FURTHER ASSURANCES. The Company and the Purchaser each
agree to execute and deliver such other documents or agreements as may be
necessary or desirable for the implementation of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby.

         SECTION 7.07 SUBMISSION TO JURISDICTION; CONSENT TO SERVICE OF PROCESS.

         (a) The parties hereto hereby irrevocably submit to the exclusive
jurisdiction of any federal or state court located within King County,
Washington, over any dispute arising out of or relating to this Agreement or any
of the transactions contemplated hereby and each party hereby irrevocably agrees
that all claims in respect of such dispute or any suit, action or proceeding
related thereto shall be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the


                                       34


<PAGE>

maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

         (b) Each of the parties hereto hereby consents to process being served
by any party to this Agreement in any suit, action or proceeding by the mailing
of a copy thereof in accordance with the provisions of Section 7.08 hereof.

         SECTION 7.08 NOTICES. Any notice, request, demand or other
communication required or permitted to be given to a party pursuant to the
provisions of this Agreement will be in writing and will be effective and deemed
given under this Agreement on the earliest of: (a) the date of personal
delivery, (b) the date of transmission by facsimile, with confirmed transmission
and receipt, (c) two (2) days after deposit with a nationally-recognized courier
or overnight service and (d) five (5) days after mailing via first-class mail.
All notices not delivered personally or by facsimile will be sent with postage
and other charges prepaid and properly addressed to the party to be notified at
the address set forth for such party (i) if to the Purchaser, to Cascade
Investment, L.L.C., 2365 Carillon Point, Kirkland, WA 98033, attention: Michael
Larson, with a copy to Thelen Reid & Priest LLP, 875 Third Avenue, New York, NY
10022, attention: John T. Hood, facsimile (212) 603-2001, and (ii) if to the
Company, to Pacific Ethanol, Inc., 5711 N. West Ave., Fresno, CA 93711,
attention: Neil Koehler, with a copy to Rutan & Tucker LLP, 611 Anton Boulevard,
14th Floor, Costa Mesa, CA 92626, attention: Larry A. Cerutti, facsimile (714)
546-9035. Any party hereto (and such party's permitted assigns) may change such
party's address for receipt of future notices hereunder by giving written notice
to the Company and the Purchaser.

         SECTION 7.09 GOVERNING LAW. This Agreement shall be governed by, and
construed, interpreted and enforced in accordance with, the laws of the State of
Washington, without giving effect to the principles of conflicts of laws
thereunder which would specify the application of the law of another
jurisdiction.

         SECTION 7.10 ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits hereto, together with the other Transaction Documents, constitutes
the sole and entire agreement of the parties with respect to the subject matter
hereof. All Schedules and Exhibits hereto are hereby incorporated herein by
reference.

         SECTION 7.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         SECTION 7.12 AMENDMENTS AND WAIVERS. This Agreement may not be amended
or modified, and no provisions hereof may be waived, without the written consent
of the Company and the Purchaser. No action taken pursuant to this Agreement,
including without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representation, warranty, covenant or agreement contained
herein. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach. No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.


                                       35


<PAGE>

         SECTION 7.13 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.

         SECTION 7.14 TITLES AND SUBTITLES; INTERPRETIVE MATTERS. The titles and
subtitles used in this Agreement are for convenience of reference only and are
not to be considered in construing or interpreting any term or provision of this
Agreement. No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.

         SECTION 7.15 FACSIMILE SIGNATURES. Any signature page delivered by a
fax machine shall be binding to the same extent as an original signature page,
with regard to any agreement subject to the terms hereof or any amendment
thereto. Any party who delivers such a signature page agrees to deliver promptly
an original counterpart to each party to whom the faxed signature page was sent.

         SECTION 7.16 OTHER REMEDIES. In addition to those remedies specifically
set forth herein and in the Transaction Documents, if any, each party may
proceed to protect and enforce its rights under this Agreement and the
Transaction Documents either by suit in equity and/or by action at law,
including, but not limited to, an action for damages as a result of any such
breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement or in the Transaction Documents. No right
or remedy conferred upon or reserved to any party under this Agreement or the
Transaction Documents is intended to be exclusive of any other right or remedy,
and every right and remedy shall be cumulative and in addition to every other
right and remedy given under this Agreement and the Transaction Documents or now
and hereafter existing under applicable law.

         SECTION 7.17 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

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

         "CHANGE OF CONTROL" shall mean (A) the acquisition at any time by a
"person" or "group" (as such terms are used in Sections 13(d) and 14(d)(2) of
the Exchange Act who or which are the beneficial owners (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of securities
representing more than 50% of the combined voting power in the election of


                                       36


<PAGE>

directors of the then outstanding securities of the Company or any successor of
the Company, unless the acquisition of securities resulting in such ownership by
such person or group had been approved unanimously by the Board; (B) approval by
the stockholders of the Company of any sale or disposition of substantially all
of the assets or earning power of the Company; or (C) approval by the
stockholders of the Company of any merger, consolidation, or statutory share
exchange to which the Company is a party as a result of which the persons who
were stockholders immediately prior to the effective date of the merger,
consolidation or share exchange shall have beneficial ownership of less than 50%
of the combined voting power in the election of directors of the surviving
corporation.

         "CLOSING" shall mean the consummation of the transactions contemplated
by this Agreement and the Transaction Documents.

         "CLOSING DATE" shall mean the third (3rd) business day after the
conditions in Sections 4.01(e) and (g) and Section 4.02(e) hereof are either
satisfied, or waived by the party entitled to waive such conditions, or such
other date as may be mutually agreed to by the Company and the Purchaser.

         "DEPOSIT AGREEMENT" shall mean the Deposit Agreement between the
Company and a bank or trust company consented to by the Purchaser, in the form
attached hereto as Exhibit F.

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

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

         "MATERIAL ADVERSE CHANGE" shall mean a material adverse change in the
business, operations, assets, liabilities, prospects, properties, condition
(financial or otherwise) or results of operations of (i) the Company and its
Subsidiaries, taken as a whole, (ii) Pacific Ethanol California, Inc. and its
Subsidiaries, taken as a whole or (iii) Kinergy Marketing, LLC and its
Subsidiaries, taken as a whole.

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

         "REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights and
Stockholders Agreement between the Company and the Purchaser, in the form
attached hereto as Exhibit G.

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


                                       37


<PAGE>

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

         "TRANSACTION DOCUMENTS" shall mean this Agreement, the Registration
Rights Agreement, the Deposit Agreement, the Voting Agreement, each Voting
Letter and all other agreements and instruments and any other documents,
certificates, instruments or agreements executed pursuant to or in connection
with any such document or this Agreement, as such documents may be amended from
time to time.

         "VOTING AGREEMENT" shall mean the Voting Agreement among the Company,
certain of its executive officers and directors, and the Purchaser in the form
attached hereto as Exhibit H.

         "VOTING LETTER" shall have the meaning set forth in the Registration
Rights Agreement.


                            [SIGNATURE PAGES FOLLOW]


                                       38


<PAGE>

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


COMPANY:                                      PACIFIC ETHANOL, INC.


                                              By: /s/ Neil M. Koehler
                                                 ------------------------------
                                              Name: Neil M. Koehler
                                              Title: Chief Executive Officer

                                              Address: 5711 N. West Avenue
                                                       Fresno, California 93711




PURCHASER:                                    CASCADE INVESTMENT, L.L.C.


                                              By: /s/ Michael Larson
                                                 ------------------------------
                                              Name: Michael Larson
                                              Title: Business Manager


                                       39


</TEXT>
</DOCUMENT>
