Exhibit 10.3
 
KINERGY MARKETING LLC
400 Capitol Mall, Suite 2060
Sacramento, California 95814
 
 
November 5, 2009

Wachovia Capital Finance Corporation (Western),
  as Agent for and on behalf of the
  Lenders as referred to below
245 S. Los Robles Avenue, 7th Floor
Pasadena, California 91101-3638

Re:           Amendment No. 2 to Loan and Security Agreement, Consent and Waiver

Ladies and Gentlemen:

Wachovia Capital Finance Corporation (Western) (“Wachovia”), in its capacity as
agent (“Agent”) for the Lenders from time to time party to the Loan Agreement
referred to below, the Lenders and Kinergy Marketing LLC, an Oregon limited
liability company (“Borrower”), have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated as of July 28, 2008, by and
among Agent, Lenders and Borrower (the “Loan Agreement”), and the other
agreements, documents and instruments referred to therein or at any time
executed and/or delivered in connection therewith or related thereto, including,
but not limited to, the Letter re: Amendment and Forbearance Agreement, dated
February 13, 2009 (the “Forbearance Agreement”), the Amendment No. 1 to Letter
re: Amendment and Forbearance Agreement, dated as of February 26, 2009 (the
“Amendment No. 1 to Forbearance Agreement”), the Amendment No. 2 to Letter re:
Amendment and Forbearance Agreement, dated as of March 27, 2009 (the “Amendment
No. 2 to Forbearance Agreement”), the Letter re: Amendment and Waiver Agreement,
dated May 17, 2009 (the “Agreement and Waiver”), and this Letter re: Amendment
No. 2 to Loan and Security Agreement, Consent and Waiver (this “Amendment No.
2”) (all of the foregoing, together with the Loan Agreement, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, being collectively referred to herein as the “Financing
Agreements”).  Wachovia is currently both the Agent and the sole Lender under
the Loan Agreement and is hereinafter referred to in this Amendment No. 2 in
both such capacities, as “Wachovia”.
 
Borrower and Pacific Ethanol, Inc., a Delaware corporation, as Guarantor
(“Parent”) have requested that Wachovia (a) waive the Event of Default under
Section 10.1(a)(i) of the Loan Agreement resulting from the failure of Borrower
to maintain EBITDA in the amount required by Section 9.17 for the four (4)
consecutive month period ending August 31, 2009, (b) waive the Event of Default
under Section 10.1(a)(iv) of the Loan Agreement resulting from the failure of
Borrower to deliver to Agent copies of the financing agreements among Parent,
certain of its subsidiaries and Lyles United, LLC within the time period
specified in, and in accordance with, Section 6(g) of the Agreement and Waiver
(the Events of Default identified in clauses (a) and (b) hereof, collectively,
the “Existing Defaults”), (c) consent to the making by Borrower of a
distribution to Parent in an amount not to exceed $971,000 (the “Parent
Distribution”), and (d) make certain amendments to the Loan Agreement and other
Financing Agreements as set forth herein, which Wachovia is willing to do
subject to the terms and conditions set forth in this Amendment No. 2.
 
 
 

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In consideration of the foregoing, the mutual agreements and covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
 
1. Interpretation.
 
  All capitalized terms used in this Amendment No. 2 shall have the meanings
assigned thereto in the Loan Agreement and the other Financing Agreements,
unless otherwise defined herein.
 
2. Amendments to Loan Agreement.
 
(a) Additional Definition.  As used herein, the following term shall have the
meaning given to it below, and the Loan Agreement and the other Financing
Agreements are hereby amended to include, in addition and not in limitation, the
following definition:
 
“Amendment No. 2 to Loan Agreement” shall mean the Letter re: Amendment No. 2 to
Loan and Security Agreement, Consent and Waiver, dated November 5, 2009, by and
among Borrower, Parent, Agent and the Lenders, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

(b) Availability Block.  The definition of “Availability Block” as set forth in
the Loan Agreement is hereby amended and restated in its entirety as follows:
 
““Availability Block” shall mean $1,000,000.”

(c) EBITDA.  The definition of “EBITDA” in Section 1.29 of the Loan Agreement is
hereby amended and restated in its entirety as follows:
 
“1.29           “EBITDA” shall mean, as to any Person, with respect to any
period, an amount equal to: (a) the Consolidated Net Income of such Person and
its Subsidiaries for such period, plus (b) depreciation and amortization
(including amortization of deferred financing fees), non-cash impairment
charges, imputed interest, deferred compensation, non-cash inventory valuation
adjustments and bank fees for such period (all to the extent deducted in the
computation of Consolidated Net Income of such Person), all in accordance with
GAAP, plus (c) Interest Expense for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person), plus (d) the Provision
for Taxes for such period (to the extent deducted in the computation of
Consolidated Net Income of such Person), plus (e) any costs and expenses
incurred, and any amounts paid in cash (whether pursuant to settlement or a
final order of a court of competent jurisdiction), in connection with any
litigation or judgment, to the extent of the amount received by Borrower
(whether by contribution or loan) from Parent to finance such costs, expenses
and payments, plus (f) charges incurred in connection with the termination of
the lease agreement with General Electric Railcar Services Corporation in an
amount not to exceed $550,000, plus (g) payments made in connection with the
consummation of the Western Ethanol Agreement and the transactions thereunder in
an amount not to exceed $956,323, minus (h) cash proceeds received in connection
with the consummation of the Assignment of Claim between Borrower, as assignor,
and Hain Capital Holdings, LLC, as assignee, and the Assignment of Claim between
Borrower, as assignor, and Hain Capital Holdings, Ltd., as assignee, and the
transactions thereunder in an amount not to exceed $971,056.”
 
 
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(d) Notices.  Section 13.3 of the Loan Agreement is hereby amended by deleting
the address for Agent, Lenders and Issuing Bank set forth therein and replacing
it with the following:
 
“If to Agent, Lenders or Issuing Bank:
Wachovia Capital Finance Corporation
(Western) (a Wells Fargo Company)
245 S. Los Robles Avenue, 7th Floor
Pasadena, California 91101-3638
Attention:            Portfolio Manager
Telephone No.:   626-685-4454
Telecopy No.:      626-844-9063”

3. Waiver of Existing Defaults.
 
(a) Pursuant to Borrower’s request, subject to the terms and conditions
contained herein, Wachovia hereby waives the Existing Defaults.
 
(b) Wachovia has not waived and is not by this Amendment No. 2 waiving, and has
no present intention of waiving, any Default or Event of Default other than the
Existing Defaults, which may have occurred prior to the date hereof, or may be
continuing on the date hereof or any Event of Default which may occur after the
date hereof, other than the Existing Defaults, whether the same or similar to
the Existing Defaults or otherwise.  Wachovia reserves the right, in its
discretion, to exercise any or all of its rights and remedies arising under the
Financing Agreements, applicable law or otherwise, as a result of any other
Events of Default which may have occurred prior to the date hereof, or are
continuing on the date hereof, or any Event of Default which may occur after the
date hereof, whether the same or similar to the Existing Defaults or otherwise
upon or after the rescission and termination of the waiver provided for in
Section 3(a) above.  Nothing contained herein shall be construed as a waiver of
the failure of Borrower to comply with the terms of the Loan Agreement and the
other Financing Agreements after such time.
 
4. Consent to Parent Distribution.
 
Pursuant to Borrower’s and Parent’s request, subject to the terms and conditions
contained herein, as a one-time accommodation to Borrower and Parent, Wachovia
hereby consents to the Parent Distribution; provided, that, each of the
following conditions shall have been satisfied:
 
(a) On or before March 31, 2010, Wachovia shall have received evidence, in form
and substance satisfactory to Wachovia, that the Parent Distribution shall have
been made, and
 
(b) immediately prior, and immediately after giving effect to the Parent
Distribution, there shall exist no Default or Event of Default.
 
 
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5. Acknowledgment of Obligations, Security Interests and Financing Agreements.
 
(a) Acknowledgment of Obligations.  Borrower and Parent hereby acknowledge,
confirm and agree that Borrower is unconditionally indebted to Wachovia as of
the close of business on November 4, 2009, in respect of the Loans and all other
Obligations in the aggregate principal amount of not less than $4,644,297.89,
together with interest accrued and accruing thereon, and all fees, costs,
expenses and other sums and charges now or hereafter payable by Borrower to
Wachovia pursuant to the Loan Agreement and the other Financing Agreements, all
of which are unconditionally owing by Borrower to Wachovia pursuant to the
Financing Agreements, in each case without offset, defense or counterclaim of
any kind, nature or description whatsoever.
 
(b) Acknowledgment of Security Interests.  Borrower and Parent hereby
acknowledge, confirm and agree that Wachovia has, and shall continue to have,
valid, enforceable and perfected security interests in and liens upon the
Collateral heretofore granted by Borrower to Wachovia pursuant to the Financing
Agreements or otherwise granted to or held by Wachovia.
 
(c) Binding Effect of Financing Agreements.  Borrower and Parent hereby
acknowledge, confirm and agree that: (i) each of the Financing Agreements to
which Borrower and Parent (as applicable) are a party has been duly executed and
delivered to Wachovia by Borrower and Parent (as applicable), and each is in
full force and effect as of the date hereof, (ii) the agreements and obligations
of Borrower and Parent (as applicable) contained in such Financing Agreements to
which they are a party and in this Amendment No. 2 constitute the legal, valid
and binding Obligations of Borrower and Parent (as applicable), enforceable
against them in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or limiting creditors’ rights generally or by equitable principles
relating to enforceability, and Borrower and Parent (as applicable) have no
valid defense to the enforcement of such Obligations, and (iii) Wachovia is and
shall be entitled to the rights, remedies and benefits provided for in the
Financing Agreements and pursuant to applicable law, but subject to the terms
and conditions of this Amendment No. 2.
 
6. Representations, Warranties and Covenants.
 
Borrower and Parent hereby represent, warrant and covenant to Wachovia the
following (which shall survive the execution and delivery of this Amendment No.
2), the truth and accuracy of which are a continuing condition of the making of
Loans to Borrower:
 
(a) this Amendment No. 2 and each other agreement or instrument to be executed
and/or delivered in connection herewith (collectively, together with this
Amendment No. 2, the “Amendment Documents”) have been duly authorized, executed
and delivered by all necessary action on the part of Borrower and Parent and, if
necessary, their respective stockholders and/or members, as the case may be, and
the agreements and obligations of Borrower and Parent contained herein and
therein constitute the legal, valid and binding obligations of Borrower and
Parent, enforceable against them in accordance with their terms, except as
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors’
rights and except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought;
 
 
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(b) the execution, delivery and performance of the Amendment Documents (a) are
all within Borrower’s and Guarantor’s corporate or limited liability company
powers (as applicable), (b) are not in contravention of law or the terms of
Borrower’s or Guarantor’s certificate or articles of organization or formation,
operating agreement, by-laws or other organizational documentation, or any
indenture, agreement or undertaking to which Borrower or Guarantor is a party or
by which Borrower, Guarantor or its or their property is bound and (c) shall not
result in the creation or imposition of any lien, claim, charge or encumbrance
upon any of the Collateral, except in favor of Wachovia pursuant to the Loan
Agreement and the Financing Agreements as amended hereby;
 
(c) all of the representations and warranties set forth in the Loan Agreement
and the other Financing Agreements, each as amended hereby, are true and correct
in all material respects on and as of the date hereof, as if made on the date
hereof, except to the extent any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall have been
true and correct as of such date;
 
(d) after giving effect to this Amendment No. 2, no Default or Event of Default
exists as of the date of this Amendment No. 2; and
 
(e) no action of, or filing with, or consent of any governmental or public body
or authority, including, without limitation, any filing with the U.S. Patent and
Trademark Office, and no approval or consent of any other party, is required to
authorize, or is otherwise required in connection with, the execution, delivery
and performance of this Amendment No. 2.
 
7. Amendment and Consent Fee.
 
In addition to all other fees, charges, interest and expenses payable by
Borrower to Wachovia under the Loan Agreement and the other Financing
Agreements, Borrower shall pay to Wachovia an amendment and consent fee in the
amount of $25,000, which fee shall be fully earned as of and payable in advance
on the date hereof.  The foregoing fee may be charged to any loan account of
Borrower maintained by Wachovia.
 
8. Conditions Precedent.
 
This Amendment No. 2 shall not become effective unless all of the following
conditions precedent have been satisfied in full, as determined by Wachovia:
 
(i) the receipt by Wachovia of an original (or faxed or electronic copy) of this
Amendment No. 2, duly authorized, executed and delivered by Borrower and Parent;
 
(ii) the receipt by Wachovia of the amendment fee set forth in Section 7 above;
and
 
 
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(iii) no Default or Event of Default shall exist or have occurred (after giving
effect to the waivers and amendments made by Wachovia pursuant to this Amendment
No. 2).
 
9. Effect of this Amendment No. 2.
 
  Except as modified pursuant hereto, no other changes or modifications to the
Loan Agreement and the other Financing Agreements are intended or implied and in
all other respects the Loan Agreement and the other Financing Agreements are
hereby specifically ratified, restated and confirmed by all parties hereto as of
the effective date hereof.  To the extent of any conflict between the terms of
this Amendment No. 2 and the Loan Agreement or any of the other Financing
Agreements, the terms of this Amendment No. 2 shall control.  The Loan Agreement
and this Amendment No. 2 shall be read and construed as one agreement.
 
10. Further Assurances.
 
  At Wachovia’s request, Borrower and Parent shall execute and deliver such
additional documents and take such additional actions as Wachovia requests to
effectuate the provisions and purposes of this Amendment No. 2 and to protect
and/or maintain perfection of Wachovia’s security interests in and liens upon
the Collateral.
 
11. Governing Law.
 
  The validity, interpretation and enforcement of this Amendment No. 2 in any
dispute arising out of the relationship between the parties hereto, whether in
contract, tort, equity or otherwise shall be governed by the internal laws of
the State of California (without giving effect to principles of conflicts of
law).
 
12. Binding Effect.
 
  This Amendment No. 2 shall be binding upon and inure to the benefit of each of
the parties hereto and their respective successors and assigns
 
13. Counterparts.
 
  This Amendment No. 2 may be executed in any number of counterparts, but all of
such counterparts when executed shall together constitute one and the same
Agreement.  In making proof of this Amendment No. 2, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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Very truly yours,
     
KINERGY MARKETING LLC,
  as Borrower
 
By:  /s/ BRYON MCGREGOR                          
Name:  Bryon
McGregor                                                                  
Title:  Interim
CFO                                                                 
     
PACIFIC ETHANOL, INC,
  as Parent
 
By:  /s/ BRYON MCGREGOR                                                        
Name:  Bryon
McGregor                                                                  
Title:  Interim
CFO                                                                  
   
AGREED TO:
     
WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN),
  as Agent and sole Lender
 
By:  /s/ CARLOS VALLES                                
Name:  Carlos
Valles                                                                  
Title:  Director                                                                  
 

 
 
[Signature Page to Amendment No 2 to Loan and Security Agreement and Consent]
 
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