Exhibit 10.4

 

SECURITY AGREEMENT

 

This Security Agreement, dated as of March 20, 2019 (as amended, supplemented or
otherwise modified from time to time in accordance with the provisions hereof,
this “Agreement”), made by and between PACIFIC ETHANOL CENTRAL, LLC, a limited
liability company organized under the laws of Delaware (“Grantor”), and COBANK,
ACB, a federally-chartered instrumentality of the United States, as Agent for
the benefit of the Lenders under the Credit Agreement (together with its
successors and assigns, “Secured Party”).

 

RECITALS:

 

WHEREAS, COMPEER FINANCIAL, PCA, a federally-chartered instrumentality of the
United States, successor by merger to 1st Farm Credit Services, PCA (together
with its successors and assigns, “Lender” and together with the Secured Party,
the “Lender Parties”), Secured Party and PACIFIC ETHANOL PEKIN, LLC, a limited
liability company organized under the laws of Delaware (“Borrower”) are parties
to that certain Credit Agreement dated as of December 15, 2016, as amended by
that certain Amendment No. 1 to Credit Agreement dated as of March 1, 2017, as
further amended by that certain Amendment No. 2 to Credit Agreement dated as of
August 7, 2017, that certain Amendment No. 3 to Credit Agreement dated as of
March 30, 2018, and as further amended by that certain Amendment No. 4 to Credit
Agreement (the “Amendment”) of even date herewith (as may be amended,
supplemented or restated from time to time, collectively the “Credit
Agreement”), pursuant to which the Lender Parties may make advances and extend
other financial accommodations to Borrower.

 

WHEREAS, Grantor executed and delivered a Guaranty and Contribution Agreement in
favor of Lender and Secured Party of even date herewith (the “Guaranty”).

 

WHEREAS, as a condition to Lender and Secured Party entering into the Amendment,
Grantor shall enter into this Agreement.

 

NOW, THEREFORE, for Ten Dollars ($10.00) in hand paid to Grantor and in
consideration of the premises and mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to secure the timely payment and performance of the Secured
Obligations (as hereinafter defined), the parties hereto agree as follows:

 

1.Definitions.

 

(a)       Each capitalized term used herein, unless otherwise defined herein,
shall have the meaning ascribed to such term in the Credit Agreement. As used
herein, the following terms shall have the following meanings:

 

“Collateral” has the meaning set forth in Section 2.

 

“First Priority” means, with respect to any Lien purported to be created in any
Collateral pursuant to this Agreement, such Lien is the most senior Lien to
which such Collateral is subject (subject only to Permitted Liens).

 

“Proceeds” means “proceeds” as such term is defined in section 9-102 of the UCC
and, in any event, shall include all dividends or other income from the
Collateral, collections thereon or distributions with respect thereto.

 

“Secured Obligations” has the meaning set forth in Section 3.

 

 

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of Colorado or, when the laws of any other state govern the method or
manner of the perfection or enforcement of any security interest in any of the
Collateral, the Uniform Commercial Code as in effect from time to time in such
state.

 

(b)       Deposit Accounts. All of the Grantor’s deposit accounts, including but
not limited to the Pledged Account (as defined in the Guaranty) are listed on
Schedule 2 attached hereto and made a part hereof. Each of the deposit accounts
listed on Schedule 2 shall be deemed to be a “deposit account” referenced in the
definition of “Collateral” contained in Section 2 of this Agreement and shall be
subject in all respects to the security interest granted by the Debtor to the
Secured Party pursuant to this Agreement. Upon establishing a deposit account
that is not listed on Schedule 2 (to the extent that establishing such deposit
account is otherwise permitted hereunder and under any other Loan Document), the
Grantor shall promptly give notice to the Secured Party that such deposit
account has been established and shall immediately execute or otherwise
authenticate a supplement to Schedule 2 that includes such deposit account and
take all action necessary to give the Secured Party “control” (as such term is
defined in the UCC) over such deposit account, including causing the applicable
bank or financial institution to enter into a control agreement (in form and
substance acceptable to the Secured Party) with the Secured Party for such
deposit account.

 

2.             Grant of Security Interest. Grantor hereby grants to Secured
Party a continuing security interest in all of its right, title and interest in
and to the following, wherever located, whether now existing or hereafter
arising or acquired (collectively, the “Collateral”):

 

(a)       all accounts (including health-care-insurance receivables), goods
(including inventory and equipment), goods (including inventory and equipment)
currently or hereafter held on consignment, documents (including, if applicable,
electronic documents), fixtures, instruments, promissory notes, chattel paper
(whether tangible or electronic), letters of credit, letter-of-credit rights
(whether or not the letter of credit is evidenced by a writing), securities and
all other investment property (but exclusive any in equity interest in Illinois
Corn Processing, LLC, an Illinois limited liability company and wholly owned
subsidiary of Grantor), commercial tort claims described on Schedule 1 hereof as
supplemented by any written notification given by Grantor to Secured Party
pursuant to Section 4(e), general intangibles (including all payment
intangibles), money, deposit accounts (including each of the deposit accounts
listed on Schedule 2 attached hereto), and any other contract rights or rights
to the payment of money; and

 

(b)       all Proceeds and products of each of the foregoing, all books and
records relating to the foregoing, all supporting obligations related thereto,
and all accessions to, substitutions and replacements for, and rents, profits
and products of, each of the foregoing, and any and all Proceeds of any
insurance, indemnity, warranty or guaranty payable to Grantor from time to time
with respect to any of the foregoing.

 

3.       Secured Obligations. The Collateral secures the payment and performance
of (a) all indebtedness and obligations of Grantor under the Guaranty and (b)
and all indebtedness and obligations of Grantor now or hereafter existing under
this Agreement (collectively, “Secured Obligations”).

 

4.Perfection of Security Interest and Further Assurances.

 

(a)       Grantor shall, from time to time, as may be required by Secured Party
with respect to all Collateral, promptly take all actions as may be reasonably
requested by Secured Party to perfect the Lien of Secured Party in the
Collateral, including, with respect to all Collateral over which control may be
obtained within the meaning of sections 8-106, 9-104, 9-105, 9-106 and 9-107 of
the UCC, section 201 of the federal Electronic Signatures in Global and National
Commerce Act and, as the case may be, section 16 of the Uniform Electronic
Transactions Act, as applicable, Grantor shall promptly take all actions as may
be reasonably requested from time to time by Secured Party so that control of
such Collateral is obtained and at all times held by Secured Party. All of the
foregoing shall be at Grantor’s sole cost and expense.

 

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(b)       Grantor hereby irrevocably authorizes Secured Party at any time and
from time to time to file in any relevant jurisdiction any financing statements
and amendments thereto that contain the information required by Article 9 of the
UCC of each applicable jurisdiction for the filing of any financing statement or
amendment relating to the Collateral, including any financing or continuation
statements or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Lien granted by Grantor hereunder,
without Grantor’s signature where permitted by law, including the filing of a
financing statement describing the Collateral as all assets now owned or
hereafter acquired by Grantor, or words of similar effect. Grantor agrees to
provide all information required by Secured Party pursuant to this Section
promptly to Secured Party upon request.

 

(c)       Grantor hereby further authorizes Secured Party to file with the
United States Patent and Trademark Office and the United States Copyright Office
(and any successor office and any similar office in any state of the United
States or in any other country) this Agreement and other documents for the
purpose of perfecting, confirming, continuing, enforcing or protecting the Lien
granted by Grantor hereunder, without Grantor’s signature where permitted by
law.

 

(d)       If Grantor shall at any time hold or acquire any certificated
securities, promissory notes, tangible chattel paper, negotiable documents or
warehouse receipts relating to the Collateral, Grantor shall promptly indorse,
assign and deliver the same to Secured Party, accompanied by such instruments of
transfer or assignment duly executed in blank as Secured Party may from time to
time specify.

 

(e)       If Grantor shall at any time hold or acquire a commercial tort claim,
Grantor shall (a) promptly notify Secured Party in a writing signed by Grantor
of the particulars thereof and grant to Secured Party in such writing a Lien
therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance satisfactory to Secured Party and (b)
deliver to Secured Party an updated Schedule 1.

 

(f)       If any Collateral is at any time in the possession of a bailee,
Grantor shall promptly notify Secured Party thereof and, at Secured Party’s
request and option, shall promptly obtain an acknowledgment from the bailee, in
form and substance satisfactory to Secured Party, that the bailee holds such
Collateral for the benefit of Secured Party and the bailee agrees to comply,
without Grantor’s further consent, at any time with instructions of Secured
Party as to such Collateral.

 

(g)       If Grantor is at any time a beneficiary under a letter of credit,
Grantor will promptly notify Secured Party and, at Secured Party’s request,
Grantor will, pursuant to an agreement in form and substance reasonably
acceptable to Secured Party, either (a) arrange for the issuer and any confirmer
or other nominated person of such letter of credit to consent to an assignment
to Secured Party of the proceeds of the letter of credit or (b) arrange for
Secured Party to become the transferee beneficiary of the letter of credit.

 

(h)       Grantor agrees that at any time and from time to time, at Grantor’s
expense, Grantor will promptly execute and deliver all further instruments and
documents, obtain such agreements from third parties, and take all further
action, that may be necessary or desirable, or that Secured Party may reasonably
request, in order to perfect and protect any Lien granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder or under
any other agreement with respect to any Collateral.

 

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5.Representations and Warranties. Grantor represents and warrants as follows:

 

(a)       (i) Grantor’s exact legal name is that indicated on the signature page
hereof and (ii) Grantor is an organization of the type, and is organized in the
jurisdiction, set forth in the preamble hereof.

 

(b)       The Collateral consisting of securities have been duly authorized and
validly issued, and are fully paid and non-assessable and subject to no options
to purchase or similar rights. Grantor holds no commercial tort claims except as
indicated on Schedule 1. None of the Collateral constitutes, or is the proceeds
of, “farm products” as defined in section 9-102(a)(34) of the UCC. None of the
account debtors or other persons obligated on any of the Collateral is a
governmental authority covered by the Federal Assignment of Claims Act or like
federal, state or local statute or rule in respect of such Collateral. Grantor
has at all times operated its business in compliance with all applicable
provisions of the federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and ordinances
dealing with the control, shipment, storage or disposal of hazardous materials
or substances.

 

(c)       At the time the Collateral becomes subject to the Lien created by this
Agreement, Grantor will be the sole, direct, legal and beneficial owner thereof,
free and clear of any Lien, claim, option or right of others except for the Lien
created by this Agreement and other Permitted Liens.

 

(d)       The grant of security interest in the Collateral pursuant to this
Agreement creates a valid and perfected First Priority Lien in the Collateral,
securing the payment and performance when due of the Secured Obligations.

 

(e)       Grantor has full power, authority and legal right to grant a security
interest in the Collateral pursuant to this Agreement.

 

(f)       This Agreement has been duly authorized, executed and delivered by
Grantor and constitutes a legal, valid and binding obligation of Grantor
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors’ rights generally and subject to equitable principles (regardless of
whether enforcement is sought in equity or at law).

 

(g)       No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
borrowing of the Loans and the grant of the security interest by Grantor of the
Collateral pursuant to this Agreement or for the execution and delivery of this
Agreement by Grantor or the performance by Grantor of its obligations
thereunder, other than filings to perfect the security interest.

 

(h)       The execution and delivery of this Agreement by Grantor and the
performance by Grantor of its obligations hereunder, will not violate any
provision of any applicable law or regulation or any order, judgment, writ,
award or decree of any court, arbitrator or governmental authority, domestic or
foreign, applicable to Grantor or any of its property, or the organizational or
governing documents of Grantor or any agreement or instrument to which Grantor
is party or by which it or its property is bound.

 

(i)       Grantor has taken all action required on its part for control (as
defined in sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC, section 201
of the federal Electronic Signatures in Global and National Commerce Act and, as
the case may be, section 16 of the Uniform Electronic Transactions Act, as
applicable) to have been obtained by Secured Party over all Collateral with
respect to which such control may be obtained pursuant to the UCC. No person
other than Secured Party has control or possession of all or any part of the
Collateral.

 

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6.Accounts Receivable.

 

(a)       Secured Party may at any time and from time to time send or require
Grantor to send requests for verification of Accounts or notices of assignment
to account debtors and other obligors. Secured Party may also at any time and
from time to time telephone account debtors and other obligors to verify
accounts.

 

(b)       Secured Party may establish a collateral account for the deposit of
checks, drafts and cash payments made by Grantor’s account debtors. If a
collateral account is so established, Grantor shall promptly deliver to Secured
Party, for deposit into said collateral account, all payments on Accounts and
chattel paper received by it. All such payments shall be delivered to Secured
Party in the form received (except for Grantor’s endorsement where necessary).
Until so deposited, all payments on Accounts and chattel paper received by
Grantor shall be held in trust by Grantor for and as the property of Secured
Party and shall not be commingled with any funds or property of Grantor. All
deposits in said collateral account shall constitute proceeds of Collateral and
shall not constitute payment of any Secured Obligation. Unless otherwise agreed
in writing, Grantor shall have no right to withdraw amounts on deposit in any
collateral account.

 

(c)       Secured Party may, by notice to Grantor, require Grantor to direct
each of its account debtors to make payment directly to a special lockbox to be
under the control of Secured Party. Grantor hereby authorizes and directs
Secured Party to deposit all checks, drafts and cash payments received in said
lockbox into the collateral account established as set forth above.

 

(d)       Secured Party may notify any account debtor, or any other Person
obligated to pay any amount due, that such chattel paper, general intangible,
Account, or other right to payment has been assigned or transferred to Secured
Party for security and shall be paid directly to Secured Party. At any time
after Secured Party or Grantor gives such notice to an account debtor or other
obligor, Secured Party may (but need not), in its own name or in Grantor’s name,
demand, sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such chattel paper, Account, or other
right to payment, or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change the obligations
(including collateral obligations) of any such account debtor or other obligor.

 

7.Voting and Distributions.

 

(a)       Secured Party agrees that unless an Event of Default shall have
occurred and be continuing, Grantor may, to the extent Grantor has such right as
a holder of the Collateral consisting of securities, other equity interests or
indebtedness owed by any obligor, vote and give consents, ratifications and
waivers with respect thereto, except to the extent that, in Secured Party’s
reasonable judgment, any such vote, consent, ratification or waiver would
detract from the value thereof as Collateral or which would be inconsistent with
or result in any violation of any provision of this Agreement or any other Loan
Document, and from time to time, upon request from Grantor, Secured Party shall
deliver to Grantor suitable proxies so that Grantor may cast such votes,
consents, ratifications and waivers.

 

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(b)       Secured Party agrees that Grantor may, unless an Event of Default
shall have occurred and be continuing, receive and retain all dividends and
other distributions with respect to the Collateral consisting of securities,
other equity interests or indebtedness owed by any obligor.

 

8.Covenants. Grantor covenants as follows:

 

(a)       Grantor will not, without providing at least 30 days’ prior written
notice to Secured Party, change its legal name, identity, type of organization,
jurisdiction of organization, corporate structure, location of its chief
executive office or its principal place of business or its organizational
identification number. Grantor will, prior to any change described in the
preceding sentence, take all actions reasonably requested by Secured Party to
maintain the perfection and priority of Secured Party’s Lien in the Collateral.

 

(b)       Grantor will keep the Collateral, to the extent not delivered to
Secured Party pursuant to Section 4, at those locations listed on Schedule 3
attached hereto and Grantor will not remove the Collateral from such locations
without providing at least 10 days’ prior written notice to Secured Party except
for (a) vehicles and equipment out for repair or in service in the field, and
(b) inventory in transit in the ordinary course of business.

 

(c)       Grantor will, at its own cost and expense, defend title to the
Collateral and the First Priority Lien of Secured Party therein against the
claim of any person claiming against or through Grantor and shall maintain and
preserve such perfected First Priority Lien for so long as this Agreement shall
remain in effect.

 

(d)       Grantor will not grant, create, permit or suffer to exist any Lien,
option, right of first offer, encumbrance or other restriction or limitation of
any nature whatsoever on, any of the Collateral or any interest therein except
for Permitted Liens.

 

(e)       Grantor will not sell, lease, or otherwise dispose of any of the
Collateral except for in the ordinary course of business or as otherwise
permitted by the Guaranty.

 

(f)       Grantor will keep the Collateral in good order and repair and will not
use the same in violation of law or any policy of insurance thereon. Grantor
will permit Secured Party, or its designee, to inspect the Collateral at any
reasonable time, wherever located.

 

(g)       Grantor will pay promptly when due all taxes, assessments,
governmental charges, and levies upon the Collateral or incurred in connection
with the use or operation of the Collateral or incurred in connection with this
Agreement.

 

(h)       Grantor will continue to operate its business in compliance with all
applicable provisions of the federal Fair Labor Standards Act, as amended, and
with all applicable provisions of federal, state and local statutes and
ordinances dealing with the control, shipment, storage or disposal of hazardous
materials or substances.

 

9.       Secured Party Appointed Attorney-in-Fact. Grantor hereby appoints
Secured Party as Grantor’s attorney-in-fact, with full authority in the place
and stead of Grantor and in the name of Grantor or otherwise, from time to time
during the continuance of an Event of Default in Secured Party’s discretion to
take any action and to execute any instrument which Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement (but Secured
Party shall not be obligated to and shall have no liability to Grantor or any
third party for failure to do so or take action). This appointment, being
coupled with an interest, shall be irrevocable. Grantor hereby ratifies all that
said attorneys shall lawfully do or cause to be done by virtue hereof.

 

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10.       Secured Party May Perform. If Grantor fails to perform any obligation
contained in this Agreement, Secured Party may itself perform, or cause
performance of, such obligation, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor; provided that Secured Party
shall not be required to perform or discharge any obligation of Grantor.

 

11.       Reasonable Care. Secured Party shall have no duty with respect to the
care and preservation of the Collateral beyond the exercise of reasonable care.
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which Secured Party accords its
own property, it being understood that Secured Party shall not have any
responsibility for (a) ascertaining or taking action with respect to any claims,
the nature or sufficiency of any payment or performance by any party under or
pursuant to any agreement relating to the Collateral or other matters relative
to any Collateral, whether or not Secured Party has or is deemed to have
knowledge of such matters, or (b) taking any necessary steps to preserve rights
against any parties with respect to any Collateral. Nothing set forth in this
Agreement, nor the exercise by Secured Party of any of the rights and remedies
hereunder, shall relieve Grantor from the performance of any obligation on
Grantor’s part to be performed or observed in respect of any of the Collateral.

 

12.Remedies Upon Default. If any Event of Default shall have occurred and be
continuing:

 

(a)       Secured Party, without any other notice to or demand upon Grantor, may
assert all rights and remedies of a secured party under the UCC or other
applicable law, including the right to take possession of, hold, collect, sell,
lease, deliver, grant options to purchase or otherwise retain, liquidate or
dispose of all or any portion of the Collateral. If notice prior to disposition
of the Collateral or any portion thereof is necessary under applicable law,
written notice mailed to Grantor at its notice address as provided in Section 19
hereof ten days prior to the date of such disposition shall constitute
reasonable notice, but notice given in any other reasonable manner shall be
sufficient. So long as the sale of the Collateral is made in a commercially
reasonable manner, Secured Party may sell such Collateral on such terms and to
such purchaser(s) as Secured Party in its absolute discretion may choose,
without assuming any credit risk and without any obligation to advertise or give
notice of any kind other than that necessary under applicable law. Without
precluding any other methods of sale, the sale of the Collateral or any portion
thereof shall have been made in a commercially reasonable manner if conducted in
conformity with reasonable commercial practices of creditors disposing of
similar property. At any sale of the Collateral, if permitted by applicable law,
Secured Party may be the purchaser, licensee, assignee or recipient of the
Collateral or any part thereof and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold, assigned or licensed at such sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price of the
Collateral or any part thereof payable at such sale. To the extent permitted by
applicable law, Grantor waives all claims, damages and demands it may acquire
against Secured Party arising out of the exercise by it of any rights hereunder.
Grantor hereby waives and releases to the fullest extent permitted by law any
right or equity of redemption with respect to the Collateral, whether before or
after sale hereunder, and all rights, if any, of marshalling the Collateral and
any other security for the Secured Obligations or otherwise. At any such sale,
unless prohibited by applicable law, Secured Party or any custodian may bid for
and purchase all or any part of the Collateral so sold free from any such right
or equity of redemption. Neither Secured Party nor any custodian shall be liable
for failure to collect or realize upon any or all of the Collateral or for any
delay in so doing, nor shall it be under any obligation to take any action
whatsoever with regard thereto.

 

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(b)       All rights of Grantor to (i) exercise the voting and other consensual
rights it would otherwise be entitled to exercise pursuant to Section 7(a) and
(ii) receive the dividends and other distributions which it would otherwise be
entitled to receive and retain pursuant to Section 7(b), shall immediately
cease, and all such rights shall thereupon become vested in Secured Party, which
shall have the sole right to exercise such voting and other consensual rights
and receive and hold such dividends and other distributions as Collateral.

 

(c)       Any cash held by Secured Party as Collateral and all cash Proceeds
received by Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral shall be applied in whole or
in part by Secured Party to the payment of expenses incurred by Secured Party in
connection with the foregoing, including reasonable attorneys’ fees, and the
balance of such proceeds shall be applied or set off against all or any part of
the Secured Obligations in such order as Secured Party shall elect. Any surplus
of such cash or cash Proceeds held by Secured Party and remaining after payment
in full of all the Secured Obligations shall be paid over to Grantor or to
whomsoever may be lawfully entitled to receive such surplus. Grantor shall
remain liable for any deficiency if such cash and the cash Proceeds of any sale
or other realization of the Collateral are insufficient to pay the Secured
Obligations and the fees and other charges of any attorneys employed by Secured
Party to collect such deficiency.

 

(d)       If Secured Party shall determine to exercise its rights to sell all or
any of the Collateral pursuant to this Section, Grantor agrees that, upon
request of Secured Party, Grantor will, at its own expense, do or cause to be
done all such acts and things as may be necessary to make such sale of the
Collateral or any part thereof valid and binding and in compliance with
applicable law.

 

13.       Standards for Exercising Rights and Remedies. To the extent that
applicable law imposes duties on Secured Party to exercise remedies in a
commercially reasonable manner, Grantor acknowledges and agrees that it is not
commercially unreasonable for Secured Party (a) to fail to incur expenses
reasonably deemed significant by Secured Party to prepare Collateral for
disposition or otherwise to fail to complete raw material or work in process
into finished goods or other finished products for disposition, (b) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (c) to fail to exercise collection remedies against account
debtors or other persons obligated on Collateral or to fail to remove liens or
encumbrances on or any adverse claims against Collateral, (d) to exercise
collection remedies against account debtors and other persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (f) to contact other persons, whether or not in the
same business as the Company, for expressions of interest in acquiring all or
any portion of the Collateral, (g) to hire one or more professional auctioneers
to assist in the disposition of Collateral, whether or not the collateral is of
a specialized nature, (h) to dispose of Collateral by utilizing Internet sites
that provide for the auction of assets of the types included in the Collateral
or that have the reasonable capability of doing so, or that match buyers and
sellers of assets, (i) to dispose of assets in wholesale rather than retail
markets, (j) to decline to provide credit to any potential purchaser of the
Collateral in connection with Secured Party’s disposition of the Collateral, (k)
to disclaim disposition warranties, (l) to purchase insurance or credit
enhancements to insure Secured Party against risks of loss, collection or
disposition of Collateral or to provide to Secured Party a guaranteed return
from the collection or disposition of Collateral, or (m) to the extent deemed
appropriate by Secured Party, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist Secured Party
in the collection or disposition of any of the Collateral. Grantor acknowledges
that the purpose of this Section is to provide non-exhaustive indications of
what actions or omissions by Secured Party would satisfy Secured Party’s duties
under the UCC in Secured Party’s exercise of remedies against the Collateral and
that other actions or omissions by Secured Party shall not be deemed to fail to
satisfy such duties solely on account of not being indicated in this Section.
Without limitation upon the foregoing, nothing contained in this Section shall
be construed to grant any rights to Grantor or to impose any duties on Secured
Party that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this Section.

 

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14.       No Waiver and Cumulative Remedies. Secured Party shall not by any act
(except by a written instrument pursuant to Section 18), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default. All rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
provided by law.

 

15.       Security Interest Absolute. All rights of Secured Party and Liens
hereunder, and all Secured Obligations of Grantor hereunder, shall be absolute
and unconditional irrespective of: (a) any illegality or lack of validity or
enforceability of any Secured Obligation or any related agreement or instrument;
(b) any change in the time, place or manner of payment of, or in any other term
of, the Secured Obligations, or any rescission, waiver, amendment or other
modification of the Loan Documents, including any increase in the Secured
Obligations resulting from any extension of additional credit or otherwise; (c)
any taking, exchange, substitution, release, impairment or non-perfection of any
Collateral or any other collateral, or any taking, release, impairment,
amendment, waiver or other modification of any guaranty, for all or any of the
Secured Obligations; (d) any manner of sale, disposition or application of
proceeds of any Collateral or any other collateral or other assets to all or
part of the Secured Obligations; (e) any default, failure or delay, wilful or
otherwise, in the performance of the Secured Obligations; (f) any defense,
set-off or counterclaim (other than a defense of payment or performance) that
may at any time be available to, or be asserted by, Grantor against Secured
Party; or (g) any other circumstance (including any statute of limitations) or
manner of administering the Loans or any existence of or reliance on any
representation by Secured Party that might vary the risk of Grantor or otherwise
operate as a defense available to, or a legal or equitable discharge of, Grantor
or any other grantor, guarantor or surety.

 

16.       Continuing Security Interest; Further Actions. This Agreement creates
a continuing First Priority Lien in the Collateral and shall (a) subject to
Section 17, remain in full force and effect until payment and performance in
full of the Secured Obligations, (b) be binding upon Grantor, its successors and
assigns, and (c) inure to the benefit of Secured Party and its successors,
transferees and assigns; provided that Grantor may not assign or otherwise
transfer any of its rights or obligations under this Agreement without Secured
Party’s prior written consent.

 

17.       Termination; Release. On the date on which the PEC Contribution Amount
(as defined in the Amendment) has been paid in full to Borrower, this Agreement
will terminate automatically without any delivery of any instrument or
performance of any act by any party, except that provisions that by their terms
survive the termination of the Loan Documents will so survive. Upon such
termination, Secured Party will, at the request and expense of Grantor, (a) duly
assign, transfer and deliver to or at the direction of Grantor (without recourse
and without any representation or warranty) such of the Collateral as may then
remain in the possession of Secured Party, together with any monies at the time
held by Secured Party hereunder, and (b) execute and deliver to Grantor a proper
instrument or instruments acknowledging the satisfaction and termination of this
Agreement.

 

18.       Amendments. None of the terms or provisions of this Agreement may be
amended, modified, supplemented, terminated or waived, and no consent to any
departure by Grantor therefrom shall be effective unless the same shall be in
writing and signed by Secured Party and Grantor, and then such amendment,
modification, supplement, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which made or given.

 

9

 

 

19.       Notices. All notices, requests and demands to or upon any party hereto
shall be given in the manner and become effective as stipulated in the Credit
Agreement. Regardless of the manner in which notice is provided, notices may be
sent to Agent at the Agent’s address or telecopier number set forth in the
signature pages to the Credit Agreement and to Pledgor at the address or
telecopier number of Borrower set forth in the signature pages to the Credit
Agreement or to such other address or telecopier number as any party may give to
the other for such purpose in accordance with this paragraph.

 

20.       Headings. The headings in this Agreement are for reference only and
shall not affect the interpretation of this Agreement.

 

21.       Counterparts; Integration; Effectiveness. This Agreement and any
amendments, waivers, consents or supplements hereto may be executed in
counterparts (and by different parties hereto in different counterparts), each
of which shall constitute an original, but all taken together shall constitute a
single contract. This Agreement and the other Loan Documents constitute the
entire contract among the parties with respect to the subject matter of the Loan
Documents and supersede all previous agreements and understandings, oral or
written, with respect thereto. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile or in electronic (i.e., “pdf” or
“tif”) format shall be effective as delivery of a manually executed counterpart
of this Agreement.

 

22.       Governing Law; Jurisdiction; Etc.

 

(a)       The laws of the State of Colorado will govern this Agreement and any
claim, controversy, dispute or cause of action (whether in contract or tort or
otherwise) based upon, arising out of or relating to this Agreement and the
transactions contemplated hereby and thereby.

 

(b)       Grantor irrevocably and unconditionally agrees that it will not
commence any action, litigation or proceeding of any kind whatsoever, whether in
law or equity, or whether in contract or tort or otherwise, against Secured
Party in any way relating to this Agreement or the transactions contemplated
hereby, in any forum other than the courts of the State of Colorado sitting in
Denver County, and of the United States District Court of the Colorado, and any
appellate court from any thereof, and each of the parties hereto irrevocably and
unconditionally submits to the jurisdiction of such courts and agrees that any
such action, litigation or proceeding may be brought in any such Colorado State
court or, to the fullest extent permitted by applicable law, in such federal
court. Each of the parties hereto agrees that a final judgment in any such
action, litigation or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing herein shall affect any right that Secured Party may otherwise have
to bring any action or proceeding relating to this Agreement against Grantor or
its properties in the courts of any jurisdiction.

 

(c)       Grantor irrevocably and unconditionally waives, to the fullest extent
permitted by applicable law, any objection that it may now or hereafter have to
the laying of venue of any action or proceeding arising out of or relating to
this Agreement in any such court referred to in Section 22(b). Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.

 

(d)       Grantor irrevocably consents to the service of process in the manner
provided for notices in Section 19 and agrees that nothing herein will affect
the right of any party hereto to serve process in any other manner permitted by
applicable law.

 

10

 

 

23.       Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY. EACH PARTY HERETO (A) CERTIFIES THAT NO
AGENT, ATTORNEY, REPRESENTATIVE OR ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT SEEK TO ENFORCE THE FOREGOING
WAIVER IN THE EVENT OF LITIGATION, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.

 

[signature page to follow]

 

11

 

 

The parties have executed this Security Agreement as of the date set forth in
the introductory paragraph.

 

  SECURED PARTY:         COBANK, ACB         By: /s/ Tom D. Houser 

  Print Name:   Tom D. Houser 

  Title: Vice President

 

  GRANTOR:         PACIFIC ETHANOL CENTRAL, LLC         By: /s/ Bryon T.
McGregor 

  Print Name:   Bryon T. McGregor

  Title: CFO

 

Signature Page to Security Agreement

  

 

 

SCHEDULE 1

 

COMMERCIAL TORT CLAIMS

 

None.

 

Schedule 1 to Security Agreement 

 

 

 

SCHEDULE 2

 

DEPOSIT ACCOUNT

 

Depository Bank Account Holder Account Number Account Name Bank of America
Pacific Ethanol Central, LLC 325000605601 Pacific Ethanol Central, LLC

 

Schedule 2 to Security Agreement

 

 

 

SCHEDULE 3

 

COLLATERAL LOCATIONS

 

400 Capitol Mall, Suite 2060, Sacramento, California 95814

 

Schedule 3 to Security Agreement