Exhibit 10.11

 

ALL LIENS AND SECURITY INTERESTS EVIDENCED BY THIS AGREEMENT SHALL AT ALL TIMES
BE SUBORDINATE AND JUNIOR TO THE LIENS AND SECURITY INTERESTS GRANTED TO
CORTLAND PRODUCTS CORP. (“SENIOR AGENT”), PURSUANT TO THAT CERTAIN SECURITY
AGREEMENT DATED AS OF DECEMBER 15, 2016 (AS AMENDED FROM TIME TO TIME) MADE BY
THE COMPANY (DEFINED BELOW) IN FAVOR OF SENIOR AGENT AND SUBJECT TO THE TERMS OF
THAT CERTAIN INTERCREDITOR AGREEMENT EVEN DATED HEREWITH (AS AMENDED FROM TIME
TO TIME) BY AND AMONG SENIOR AGENT, THE COMPANY AND THE OTHER PARTIES PARTY
THERETO.

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (as amended, restated, supplemented or otherwise
modified from time to time, this “Agreement”), is made by and among Pacific
Ethanol, Inc., a Delaware corporation (the “Company”), and COBANK, ACB, a
federally-chartered instrumentality of the United States, as Agent for the
benefit of the Lenders under the Credit Agreements (together with its successors
and assigns, sometimes referred to herein as “Agent” and as “Secured Party”),
effective as of March 20, 2020.

 

RECITALS:

 

A. 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 Agent, the “Lender
Parties”), Agent and PACIFIC ETHANOL PEKIN, LLC, a limited liability company
organized under the laws of Delaware (“Pekin”) 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, as further amended by that certain Amendment No. 4 to Credit Agreement
dated March 20, 2019 (as further amended by that certain Amendment No. 5 to
Credit Agreement dated July 15, 2019, as further amended by that certain
Amendment No. 6 to Credit Agreement dated November 15, 2019, and as further
amended by that certain Amendment No. 7 (the “Pekin Amendment No. 7”) dated as
of December 20, 2019 (as may be amended, supplemented or restated from time to
time, including as of the date hereof, collectively the “Pekin Credit
Agreement”), pursuant to which the Lender Parties may make advances and extend
other financial accommodations to Pekin.

 

B. WHEREAS, Lender, Agent and ILLINOIS CORN PROCESSING, LLC, a limited liability
company organized under the laws of Delaware (“ICP” and together with Pekin, the
“Borrowers”) are parties to that certain Credit Agreement dated as of September
15, 2017 and as amended by that certain Amendment No. 1 (the “ICP Amendment No.
1”) of dated as of December 20, 2019 (as may be amended, supplemented or
restated from time to time including as of the date hereof, collectively the
“ICP Credit Agreement” and together with the PEP Credit Agreement, the “Credit
Agreements”), pursuant to which the Lender Parties may make advances and extend
other financial accommodations to ICP.

 

C. WHEREAS, in connection with the Pekin Amendment No. 7 and the ICP Amendment
No. 1, the Borrowers agreed to cause Pacific Ethanol, Inc., a Delaware
corporation and the ultimate parent entity of each Borrower (the “Company”) to
grant a security interest in all of the Company in PE OP CO., a Delaware
corporation (the “Issuer”).

 

 

 

 

D. The Company owns one hundred percent of the issued and outstanding shares of
common stock, $0.001 par value per share, of the Issuer as set forth on Schedule
I attached hereto opposite the Company’s name, as such Schedule I may be updated
or modified from time to time.

 

NOW, THEREFORE, in consideration of the agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:

 

1. Certain Definitions. As used in this Agreement, the following terms shall
have the meanings set forth in this Section 1. Terms used but not otherwise
defined in this Agreement that are defined in Article 9 of the UCC (such as
“control”, “investment property”, “proceeds” and “records”) shall have the
respective meanings given such terms in Article 9 of the UCC. Capitalized terms
used but not otherwise defined in this Agreement shall have the meanings
ascribed to them in the Credit Agreements.

 

(a) “Collateral” means the Pledged Collateral.

 

(c) “Necessary Endorsement” means undated stock powers endorsed in blank or
other proper instruments of assignment duly executed and such other instruments
or documents as the Agent or the Lenders may reasonably request.

 

(d) “Organizational Documents” means the Company’s certificate of incorporation
and bylaws.

 

(e) “Pledged Collateral” shall have the meaning ascribed to such term in Section
2(d).

 

(f) “Pledged Shares” shall have the meaning ascribed to such term in Section
2(a).

 

(g) “UCC” means the Uniform Commercial Code of the State of New York and or any
other applicable law of any state or states which has jurisdiction with respect
to all, or any portion of, the Collateral or this Agreement, from time to time.
It is the intent of the parties that defined terms in the UCC should be
construed in their broadest sense so that the term “Collateral” will be
construed in its broadest sense. Accordingly if there are, from time to time,
changes to defined terms in the UCC that broaden the definitions, they are
incorporated herein and if existing definitions in the UCC are broader than the
amended definitions, the existing ones shall be controlling.

 

The use in this Agreement of the word “include” or “including,” when following
any general statement, term or matter, will not be construed to limit such
statement, term or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not nonlimiting
language (such as “without limitation” or “but not limited to” or words of
similar import) is used with reference thereto, but will be deemed to refer to
all other items or matters that fall within the broadest possible scope of such
general statement, term or matter. The word “will” shall be construed to have
the same meaning and effect as the word “shall.” Terms used in this Agreement in
the singular have the same meaning in the plural, and vice-versa.

 

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2. Pledge. As collateral security for the Obligations, the Company hereby
pledges, collaterally assigns and hypothecates to the Agent on behalf of itself
and the Lenders, and grants to the Agent, for the benefit of the Agent and the
Lenders, a lien on and security interest in:

 

(a) the equity interests of the Issuer identified on Schedule I hereto (as may
be updated or modified from time to time in accordance herewith) as being
pledged that are held by the Company, including all securities convertible into,
and rights, warrants, options and other rights to purchase or otherwise acquire,
any of the foregoing (the “Pledged Shares”) and the certificates representing
the Pledged Shares, any interest of the Company in the entries on the books of
any securities intermediary pertaining thereto and all equity dividends and cash
dividends, cash, instruments, chattel paper and other rights, property or
proceeds and products from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Shares;

 

(b) all additional equity interests of the Issuer at any time acquired by the
Company in any manner, and the certificates representing such additional equity
interests (and any such additional equity interests shall constitute part of the
Pledged Shares under this Agreement), and all equity dividends, cash dividends,
distributions, cash, instruments, chattel paper and other rights, property or
proceeds and products from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares;

 

(c) all Records (as defined in the UCC), including supporting evidence and
documents relating to any of the above-described property, including, without
limitation, all books of account, ledgers, and cabinets in which the same are
reflected or maintained; and

 

(d) all proceeds of any of the foregoing (the assets described in this Section
2, are collectively referred to as, the “Pledged Collateral”).

 

3. Security for Obligations. This Agreement and all of the Pledged Collateral
secure the prompt payment and performance when due of any and all Obligations,
in each case whether now existing or hereafter arising (and whether arising
before or after the filing of a petition in bankruptcy and including all
interest accrued after the petition date), due or to become due, direct or
indirect, absolute or contingent, and howsoever evidenced, held or acquired.

 

4. Delivery of Pledged Collateral. All certificates or instruments that
constitute “certificated securities” pursuant to Article 8 of the UCC that
represent or evidence any of the Pledged Collateral shall be delivered to and
held by or on behalf of the Agent pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by Necessary Endorsements in
form and substance reasonably satisfactory to the Agent and the Lenders. The
Agent shall have the right upon the occurrence and during the continuance of an
Event of Default, with concurrent written notice to the Company, at any time in
its sole discretion to transfer to or to register in the name of the Agent or
any of its nominees any or all of the Pledged Collateral in order to exercise
its rights and remedies hereunder. In addition, the Agent shall have the right
to exchange certificates or instruments representing or evidencing any Pledged
Collateral for certificates or instruments of smaller or larger denominations.

 

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5. Effectiveness. This Agreement will become effective upon the date on which
the Agent has received (a) a counterpart hereof duly executed by each of the
parties hereto, and (b) payment from the Company of (i) all fees required to be
paid on or prior to the effective date of this Agreement and (ii) all reasonable
third-party fees and expenses incurred by the Agent in connection with this
Agreement and the transactions contemplated hereby, including, without
limitation, attorneys’ fees and expenses.

 

6. Representations and Warranties; Covenants. In order to induce the Agent and
the Lenders to enter into this Agreement under the Purchase Agreement, the
Company represents and warrants that the following statements are true, correct
and complete on the Closing Date (except to the extent such representation or
warranty relates to an earlier date, in which case, it is true, correct and
complete as of such earlier date) as follows and agrees as follows:

 

(a) Schedule I hereto completely and accurately sets forth the number of equity
interests of, and options or other rights to purchase or receive, the issued and
outstanding equity interests of the Issuer held by the Company as of the date
hereof and indicates which such equity interests constitute Pledged Shares. The
Pledged Shares held by the Company constitute, as of the date hereof, the
percentage of the issued and outstanding equity interests of the Issuer set
forth on Schedule I. All of such Pledged Shares owned by the Company are owned
legally and beneficially by the Company and have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth on
Schedule I, there are no outstanding warrants, options, subscriptions or other
contractual arrangements for the purchase of any other equity interests or any
securities convertible into equity interests of any Issuer, and there are no
preemptive rights with respect to the equity interests of the Issuer that
constitute Pledged Shares of the Issuer and the Pledged Shares are free and
clear of all Liens.

 

(b) The Company has the requisite corporate power and authority to enter into
this Agreement and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by the Company of this Agreement and the
filings contemplated herein have been duly authorized by all necessary action on
the part of the Company and no further action is required by the Company. This
Agreement has been duly executed by the Company. This Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and similar laws of
general application relating to or affecting the rights and remedies of
creditors and by general principles of equity.

 

(c) The execution, delivery and performance of this Agreement by the Company
does not (i) violate any of the provisions of any Organizational Documents of
the Company or any judgment, decree, order or award of any court, governmental
body or arbitrator or any applicable law, rule or regulation applicable to the
Company or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing the Company’s debt or otherwise) or other
understanding to which the Company is a party or by which any property or asset
of the Company is bound or affected. If any, all required consents (including,
without limitation, from stockLenders or creditors of the Company) necessary for
the Company to enter into and perform its obligations hereunder have been
obtained.

 

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(d) The Company hereby agrees to comply with any and all orders and instructions
of the Agent regarding the Pledged Shares consistent with the terms of this
Agreement without the further consent of the Company as contemplated by Section
8-106 (or any successor section) of the UCC. Further, the Company agrees that it
shall not enter into a similar agreement (or one that would confer “control”
within the meaning of Article 8 of the UCC) with any other person or entity.

 

(e) The Company shall vote the Pledged Shares to comply with the covenants and
agreements set forth herein.

 

(f) The Company shall register the pledge of the applicable Pledged Shares on
the books of the Company. Further, except with respect to certificated
securities delivered to the Agent, the Company shall deliver to the Agent an
acknowledgement of pledge (which, where appropriate, shall comply with the
requirements of the relevant UCC with respect to perfection by registration and
shall be in form and substance reasonably satisfactory to the Lenders) signed by
the Issuer, which acknowledgement shall confirm that: (a) it has registered the
pledge on its books and records; (b) it agrees to comply with any and all orders
and instructions of the Agent regarding the Pledged Shares without the further
consent of the Company as contemplated by Section 8-106 (or any successor
section) of the UCC; (c) at any time directed by the Agent during the
continuation of an Event of Default, the Issuer will transfer the record
ownership of such Pledged Shares into the name of any designee of the Agent,
will take such steps as may be necessary to effect the transfer, and will comply
with all other instructions of the Agent without the further consent of the
Company.

 

(g) In the event that, upon an occurrence of an Event of Default, the Agent (at
the written direction of the Lenders) shall sell all or any of the Pledged
Shares to another party or parties (herein called the “Transferee”) or shall
purchase or retain all or any of the Pledged Shares, the Company shall, to the
extent applicable: (i) deliver to the Agent or the Transferee, as the case may
be, the certificate of incorporation, bylaws, minute books, stock certificate
books, corporate seals, deeds, leases, indentures, agreements, evidences of
indebtedness, books of account, financial records and all other Organizational
Documents and records of the Issuer and its direct and indirect subsidiaries;
(ii) use its best efforts to obtain resignations of the persons then serving as
officers and directors of the Issuer and its direct and indirect subsidiaries,
if so directed by the Agent; and (iii) use its best efforts to obtain any
approvals that are required by any governmental or regulatory body in order to
permit the sale of the Pledged Shares to the Transferee or the purchase or
retention of the Pledged Shares by the Agent and allow the Transferee or the
Agent to continue the business of the Issuer and its direct and indirect
subsidiaries.

 

 5 

 

 

(h) The Company’s type of organization, jurisdiction of organization, legal
name, Federal Taxpayer Identification Number, organizational identification
number (if any) and chief executive office or principal place of business all as
in effect on the date hereof, are indicated in Schedule I hereof. Schedule I
also lists the Company’s jurisdiction and type of organization, legal name and
location of chief executive office or principal place of business at any time
during the four months preceding the date hereof, if different from those
referred to in the preceding sentence.

 

(i) The Company hereby irrevocably authorizes the Agent (and its designees) at
any time and from time to time to file any financing statements and amendments
thereto relating to the Collateral without the signature of such Grantor where
permitted by law in such form and in such jurisdictions as the Agent or Lenders
reasonably determine appropriate to perfect the security interests of the Agent
under this Agreement. The Company agrees to provide all necessary information
related to such filings to the Agent promptly upon request by the Agent or the
Lenders.

 

(j) The Company shall take such further actions, and execute and/or deliver to
the Agent such additional financing statements, amendments, assignments,
agreements, supplements, powers and instruments, and will obtain such
governmental consents and corporate approvals and will cause to be done all such
other things as the Agent or the Lenders may in its or their judgment deem
necessary or appropriate in order to create and/or maintain the validity,
perfection or priority of and protect any security interest granted or purported
to be granted in the Collateral as provided herein and the rights and interests
granted to the Agent hereunder, and enable the Agent to exercise and enforce its
rights, powers and remedies hereunder with respect to any Collateral, including
the filing of any financing statements, continuation statements and other
documents under the UCC (or other similar laws) in effect in any jurisdiction
with respect to the security interest created hereby, all in form satisfactory
to the Agent and the Lenders and in such offices wherever required by law to
perfect, continue and maintain the validity, enforceability and priority of the
security interest in the Collateral as provided herein and to preserve the other
rights and interests granted to the Agent hereunder, as against third parties,
with respect to the Collateral.

 

(k) The Company shall, except upon not less than 10 days’ prior written notice
to the Agent, and delivery to the Agent of all additional financing statements,
information and other documents reasonably requested by the Agent or the Lenders
to maintain the validity, perfection and priority of the security interests
provided for herein: (i) change its legal name, identity, type of organization
or corporate structure; (ii) change the location of its chief executive office
or its principal place of business; (iii) change its Federal Taxpayer
Identification Number or organizational identification number (if any); or (iv)
change its jurisdiction of organization (in each case, including by merging with
or into any other entity, reorganizing, organizing, dissolving, liquidating,
reincorporating or incorporating in any other jurisdiction).

 

7. [Reserved].

 

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8. Duty To Hold In Trust. If the Company shall become entitled to receive or
shall receive any securities or other property (including, without limitation,
shares of Pledged Shares or instruments representing Pledged Shares acquired
after the date hereof, or any options, warrants, rights or other similar
property or certificates representing a dividend, or any distribution in
connection with any recapitalization, reclassification or increase or reduction
of capital, or issued in connection with any reorganization of the Company or
any of its direct or indirect subsidiaries) in respect of the Pledged Shares
(whether as an addition to, in substitution of, or in exchange for, such Pledged
Shares or otherwise), the Company agrees to (i) accept the same as the agent of
the Secured Party; (ii) hold the same in trust on behalf of and for the benefit
of the Secured Party; and (iii) to deliver any and all certificates or
instruments evidencing the same to the Agent on or before the close of business
on the fifth (5th) Business Day following the receipt thereof by the Company, in
the exact form received together with the Necessary Endorsements, to be held by
the Agent subject to the terms of this Agreement as Collateral.

 

9. Rights and Remedies Upon Default.

 

(a) Upon the occurrence of any Event of Default and at any time thereafter, the
Secured Party, acting by written direction of the Lenders, shall have the right
to exercise all of the remedies conferred hereunder and under the Credit
Agreements, and shall have all the rights and remedies of a secured party under
the UCC. Without limitation, the Secured Party, for the benefit of itself and
the Lender, shall have the rights and powers listed below and shall act in
accordance with such rights and powers:

 

(i) All rights of the Company to exercise the voting and other consensual rights
with respect to the Pledged Collateral it would otherwise be entitled to
exercise shall immediately cease, and all such rights shall thereupon become
vested in the Agent, which shall have the sole right to exercise such voting and
other consensual rights.

 

(ii) All rights of the Company to receive dividends, distributions or other
proceeds of the Pledged Collateral which it would otherwise be authorized to
receive and retain shall immediately cease and all such rights shall thereupon
become vested in the Agent, which shall have the sole right to receive and hold
such dividends, distributions or other proceeds as Pledged Collateral.

 

(iii) The Agent may, without notice except as specified herein, sell all of the
Pledged Collateral pledged by the Company or any part thereof in one or more
parcels at public or private sale, at any exchange, broker’s board or at any of
the Agent’s offices or elsewhere, for cash, on credit, or for future delivery,
at such price or prices and upon such other terms as Agent deems commercially
reasonable. The Company acknowledges and agrees that such a private sale may
result in prices and other terms which may be less favorable to the seller than
if such sale were a public sale. The Company agrees that, to the extent notice
of sale shall be required by law, at least ten (10) days’ notice to the Company
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. At any sale of any
of the Pledged Collateral, if permitted by law, the Agent (if so directed by the
Lenders in writing) and any Secured Party may bid (which bid may be, in whole or
in part, in the form of cancellation of indebtedness) for the purchase of such
Pledged Collateral or any portion thereof. The Agent shall not be obligated to
make any sale of Pledged Collateral regardless of notice of sale having been
given. The Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. The
Agent shall be under no obligation to delay a sale of any of the Pledged
Collateral for the period of time necessary to permit the issuing corporation of
such securities to register such securities for public sale under the Securities
Act of 1933, as amended (the “Securities Act”), or under applicable state
securities laws (collectively, the “Securities Laws”), even if the Issuer would
agree to do so. To the extent permitted by law, the Company hereby specifically
waives all rights of redemption, stay or appraisal which such Pledgor has or may
have under any law now existing or hereafter enacted; provided, however, that
the foregoing waiver shall inure to the benefit of only the Secured Party and
its respective successors and permitted assigns.

 

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(iv) All cash proceeds received by the Agent in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied to the Obligations, in each case, in accordance with
the terms hereof.

 

(v) Each Pledgor recognizes that the Agent may be unable to effect a public sale
of all or part of the Pledged Collateral and may be compelled to resort to one
or more private sales to a restricted group of purchasers who will be obligated
to agree, among other things, to acquire such Pledged Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. Each Pledgor acknowledges that any such private sales may be at prices
and on terms less favorable to the seller than if sold at public sales and
agrees that such private sales shall be deemed to have been made in a
commercially reasonable manner, and that Agent has no obligation to delay sale
of any such Pledged Collateral for the period of time necessary to permit the
issuer of such Pledged Collateral to register such Pledged Collateral for public
sale under the Securities Act or under applicable state securities laws.

 

(b) The Agent shall comply with any applicable law in connection with a
disposition of Collateral and such compliance will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral. The Agent
may sell the Collateral without giving any warranties and may specifically
disclaim such warranties. If the Agent sells any of the Collateral on credit,
the Company will only be credited with payments actually made by the purchaser
and received by the Agent or party acting on behalf of the Agent. In addition,
the Company waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Agent’s rights and remedies hereunder,
including, without limitation, its right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights and remedies
with respect thereto.

 

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10. Applications of Proceeds.

 

(a) The Agent shall apply the proceeds of any sale, collection, foreclosure,
disposition or other realization of the Collateral hereunder in the following
order of application:

 

(i) first, to the payment of all amounts payable under this Agreement on account
of the Agent’s fees and any fees, costs and expenses (including, without
limitation, any taxes, fees and other costs incurred in connection with the
transactions contemplated hereunder and reasonable fees and expenses of legal
counsel to the Agent) or other liabilities of any kind incurred by the Agent or
any custodian, agent or sub-agent of the Agent in connection with this Agreement
or any other Transaction Document or the Agent performing its obligations
hereunder or thereunder or the transactions contemplated hereunder;

 

(ii) second, to satisfaction of the Obligations;

 

(iii) third, to the payment of any other amounts required by applicable law; and

 

(iv) fourth, to the Company any surplus proceeds.

 

(b) In the event that there are any proceeds from any sale, collection,
foreclosure, disposition or other realization upon any Pledged Collateral
remaining after application in accordance with Section 10(a)(i) above, the
Secured Party and the Company hereby (i) agrees (on behalf of itself and its
Affiliates) that the Secured Party shall have no liability to Company, for
applying such remaining proceeds in accordance with written directions received
by the Agent or pursuant to a court order issued by a court of competent
jurisdiction and (ii) waives (on behalf of itself and its Affiliates) any and
all claims and causes of action against the Secured Party for applying such
remaining proceeds in accordance with any such written directions or court
order.

 

(c) In the event that the Secured Party receives proceeds from any sale,
collection, foreclosure, disposition or other realization upon any Pledged
Collateral setting forth the amount of such proceeds payable to each Lender
pursuant to Section 10(a)(ii) above, the Secured Party and Company hereby (i)
agrees that after applying such proceeds in accordance with Section 10(a)(i)
above, the Secured Party may (x) retain such remaining proceeds, for the benefit
of the Lenders, until such time as (A) the Secured Party has received a written
direction signed by all of the Lenders setting forth the amount of such proceeds
payable to each Lender pursuant to Section 10(a)(ii) above or (B) a court order
has been issued by a court of competent jurisdiction directing the manner in
which the Agent shall distribute such remaining proceeds or (y) interplead the
amount of the distributions that should be made pursuant to clauses (ii) through
(iv) of Section 10(a) above in any court of competent jurisdiction, without
further responsibility in respect of such distributions under this Section 10
and (ii) waives any and all claims and causes of action against the Agent for
taking any actions permitted by the immediately preceding clause (i) of this
Section 10(c).

 

11. If, upon the sale or other disposition of the Collateral, the proceeds
thereof are insufficient to pay all amounts to which the Secured Party is
legally entitled, the Company will be liable for the deficiency, together with
interest thereon, at the rate set forth in the Credit Agreements, and the
reasonable fees, costs and expenses of any attorneys employed by the Secured
Party to collect such deficiency. To the extent permitted by applicable law, the
Company waives all claims, damages and demands against the Secured Party arising
out of the repossession, removal, retention or sale of the Collateral, unless,
with respect to the Secured Party, due solely to the gross negligence or willful
misconduct of the Secured Party as determined by a final judgment (not subject
to further appeal) of a court of competent jurisdiction.

 

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12. Securities Law Provision. The Company recognizes that the Agent may be
limited in its ability to effect a sale to the public of all or part of the
Pledged Shares by reason of certain prohibitions in the Securities Laws and may
be compelled to resort to one or more sales to a restricted group of purchasers
who may be required to agree to acquire the Pledged Shares for their own
account, for investment and not with a view to the distribution or resale
thereof. The Company agrees that sales so made may be at prices and on terms
less favorable than if the Pledged Shares were sold to the public, and that the
Agent has no obligation to delay the sale of any Pledged Shares for the period
of time necessary to register the Pledged Shares for sale to the public under
the Securities Laws. The Company shall cooperate with the Agent in its attempt
to satisfy any requirements under the Securities Laws applicable to the sale of
the Pledged Shares by the Agent.

 

13. Costs and Expenses. The Company agrees to pay, promptly upon demand, (i)
[Reserved], (ii) all reasonable out-of-pocket fees, costs and expenses incurred
by the Agent and its agents in the preparation, execution, delivery, filing,
recordation, administration, continuation or enforcement of this Agreement or
any other Transaction Document or any consent, amendment, waiver or other
modification relating hereto or thereto, or the transactions contemplated
thereby or the exercise of rights or performance of obligations by the Agent
thereunder, (iii) all reasonable out-of-pocket fees, expenses and disbursements
of legal counsel and any auditors, accountants, consultants or appraisers or
other professional advisors and agents engaged by the Agent incurred in
connection with the negotiation, preparation, closing, administration,
continuation, performance or enforcement of this Agreement or any other
Transaction Document or any consent, amendment, waiver or other modification
relating hereto or thereto, or the transactions contemplated thereby or the
exercise of rights or performance of obligations by the Agent thereunder and any
other document or matter requested by Company and (iv) all reasonable
out-of-pocket costs and expenses incurred by the Agent and its agents in
creating, perfecting, preserving, releasing or enforcing the Agent’s liens on
and security interest in the Pledged Collateral, including, in connection with
any filing or recording required or permitted hereunder, any filing and
recording fees, expenses and taxes, stamp or documentary taxes, and any expenses
of any searches reasonably required by the Agent. The Company shall also pay all
other claims and charges which in the reasonable opinion of the Secured Party or
the Lenders is reasonably likely to prejudice, imperil or otherwise affect the
Collateral or the security interests therein. The Company will also pay,
promptly upon demand, any and all reasonable fees, costs and expenses of the
Secured Party, including the reasonable fees, expenses and disbursements of its
legal counsel and of any auditors, accountants, consultants or appraisers or
other professional advisors, experts and agents, which the Secured Party, for
the benefit of itself and the Lenders, or the Secured Party may incur in
connection with (i) the protection, preservation, satisfaction, foreclosure,
collection or enforcement of the Collateral subject to this Agreement and the
security interest therein and lien thereon, (ii) the enforcement of this
Agreement, (iii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, or (iv) the exercise or
enforcement of any of the rights of collection of the Secured Party under the
Credit Agreements. Such fees shall be paid within fifteen (15) days of
submission of a request by the Agent to the Company and the Company shall
promptly notify the Secured Party of the payment of such fees.

 

 10 

 

 

13. Security Interests Absolute. All rights of the Secured Party and all
obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Credit Agreements or any agreement entered into in connection with the
foregoing, or any portion hereof or thereof; (b) any change in the time, manner
or place of payment or performance of, or in any other term of, all or any of
the Obligations, or any other amendment or waiver of or any consent to any
departure from the Credit Agreements or any other agreement entered into in
connection with the foregoing; (c) any exchange, release or nonperfection of any
of the Collateral, or any release or amendment or waiver of or consent to
departure from any other collateral for, or any guarantee, or any other
security, for all or any of the Obligations; or (d) any other circumstance which
might otherwise constitute any legal or equitable defense available to the
Company, or a discharge of all or any part of the security interests granted
hereby. Until the Obligations shall have been paid and performed in full, the
rights of the Secured Party shall continue even if the Obligations are barred
for any reason, including, without limitation, the running of the statute of
limitations or bankruptcy. The Company expressly waives presentment, protest,
notice of protest, demand, notice of nonpayment and demand for performance. In
the event that at any time any transfer of any Collateral or any payment
received by the Secured Party Parties hereunder shall be deemed by final order
of a court of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of the United
States, or shall be deemed to be otherwise due to any party other than the
Secured Party, then, in any such event, the Company’s obligations hereunder
shall survive cancellation of this Agreement, and shall not be discharged or
satisfied by any prior payment thereof and/or cancellation of this Agreement,
but shall remain a valid and binding obligation enforceable in accordance with
the terms and provisions hereof. The Company waives all right to require the
Secured Party to proceed against any other person or entity or to apply any
Collateral which the Secured Party may hold at any time, or to marshal assets,
or to pursue any other remedy. The Company waives any defense arising by reason
of the application of the statute of limitations to any obligation secured
hereby.

 

14. Term of Agreement. This Agreement and the Liens granted hereby shall
terminate on the date on which all payments under the Credit Agreements have
been indefeasibly paid in full and all other Obligations have been paid or
discharged; provided, however, that all indemnities of the Company contained in
this Agreement shall survive and remain operative and in full force and effect
regardless of the repayment of the Obligations, the termination of this
Agreement or the resignation or removal of the Agent. Upon such termination, the
Agent, at the written request and expense of the Company, will promptly execute
and deliver to the Company a proper instrument or instruments (including UCC
termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to the
Company (without recourse and without any representation or warranty) such of
the Pledged Collateral as may be in the possession of the Agent and as has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement.

 

 11 

 

 

15. Power of Attorney; Further Assurances.

 

(a) The Company authorizes the Secured Party, acting on behalf of itself and the
Lenders, as set forth herein, and does hereby make, constitute and appoint the
Agent and its agents, successors or assigns with full power of substitution, as
the Company’s true and lawful attorney-in-fact, with power, in the name of the
Agent or the Company, to, after the occurrence and during the continuance of an
Event of Default, generally, at the option of the Agent (or at the direction of
the Lenders), and at the expense of the Company, at any time, or from time to
time, to execute and deliver any and all documents and instruments and to do all
acts and things which the Agent or the Lenders deem necessary to protect,
preserve and realize upon the Collateral and the security interests granted
therein in order to effect the intent of this Agreement and the Credit
Agreements all as fully and effectually as the Company might or could do; and
the Company hereby ratifies all that said attorney shall lawfully do or cause to
be done by virtue hereof. This power of attorney is coupled with an interest and
shall be irrevocable for the term of this Agreement and thereafter as long as
any of the Obligations shall be outstanding. The designation set forth herein
shall be deemed to amend and supersede any inconsistent provision in the
Organizational Documents or other documents or agreements to which the Company
is subject or to which the Company is a party.

 

(b) The Company hereby irrevocably appoints the Agent as the Company’s
attorney-in-fact, with full authority in the place and instead of the Company
and in the name of the Company, to take any action and to execute any instrument
which the Agent or the Lenders may deem necessary or advisable to accomplish the
purposes of this Agreement, including the filing of one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of the Company where permitted by law and
ratifies all such actions taken by the Agent. This power of attorney is coupled
with an interest and shall be irrevocable for the term of this Agreement and
thereafter as long as any of the Obligations shall be outstanding.

 

16. Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of: (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto or by electronic mail at the e-mail
address set forth on the signature pages attached hereto prior to 5:30 p.m. (New
York time) on a Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto or by
electronic mail at the e-mail address set forth on the signature pages attached
hereto on a day that is not a Business Day or later than 5:30 p.m. (New York
time) on any Business Day, (c) the 2nd Business Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as set forth on the
signature pages attached hereto or such other address as the recipient party to
whom notice is to be given may have furnished to the other party in writing in
accordance herewith.

 

17. [Reserved].

 

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18. Miscellaneous.

 

(a) No course of dealing between the Company and the Agent or any Secured Party,
nor any failure to exercise, nor any delay in exercising, on the part of the
Agent or any Secured Party, any right, power or privilege hereunder or under the
Credit Agreements shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.

 

(b) All of the rights and remedies of the Secured Party with respect to the
Collateral, whether established hereby or by the Credit Agreements or by any
other agreements, instruments or documents or by law shall be cumulative and may
be exercised singly or concurrently. This Agreement, together with any exhibits
and schedules hereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into this Agreement and any exhibits and schedules
hereto. No provision of this Agreement may be waived, modified, supplemented or
amended except in a written instrument signed by the Company and the Secured
Party.

 

(c) No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
or any other right, power or remedy.

 

(d) This Agreement shall be binding upon and inure to the benefit of the parties
and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Lenders. Each of the Secured Party and the Company agree that,
notwithstanding anything to the contrary in the Purchase Agreement or any other
Transaction Document, no Person may become a Holder of a Note after the date
hereof and a Secured Party hereunder (whether through a sale, transfer or
assignment to such Person of any Holder’s rights or interests in all or a
portion of any Note or any other Obligations, or otherwise), unless, on or prior
to the date such Person becomes a Holder of a Note, such Person (i) agrees in
writing to be bound by the terms of this Agreement as a “Secured Party” by
executing and delivering a Security Agreement Joinder to the Agent and (ii)
provides the Agent with all documentation and other information that the Agent
requests in order to comply with the Agent’s obligations under applicable “know
your customer” and anti-money laundering rules and regulations, including the
USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)), and the results of any such “know your customer” or similar
investigation conducted by the Agent shall be satisfactory to the Agent. Any
sale, transfer or assignment to any Person of any Secured Party’s rights or
interests in all or a portion of any Note or any other Obligations made in
violation of the provisions of this Section 18(e) shall be void ab initio.

 

 13 

 

 

(e) Promptly following a request made by the Agent to a Holder, such Holder
shall notify the Collateral Agent of the outstanding principal amount of Notes
held by such Holder at such time.

 

(f) Each party shall take such further action and execute and deliver such
further documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

 

(g) This Agreement shall be construed and enforced in accordance with, and all
questions concerning the construction, validity, interpretation and performance
of this Agreement shall be governed by, the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York. The Company, each Holder and the Agent hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in The City
of New York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Agreement. Nothing contained herein shall be deemed
or operate to preclude any Holder or the Agent from bringing suit or taking
other legal action against the Company in any other jurisdiction to enforce a
judgment or other court ruling in favor of any Holder or the Agent. THE COMPANY,
EACH HOLDER AND THE AGENT HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

(i) This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

 

 14 

 

 

(j) The Company shall defend, indemnify, pay, reimburse and hold harmless the
Secured Party, the Lenders and each of their respective Affiliates, and each and
all of their respective partners, members, shareholders, officers, directors,
employees, trustees, attorneys and agents (and any other persons with other
titles that have similar functions) and (in each case) their respective heirs,
representatives, successors and assigns (each of the foregoing, an “Indemnitee”)
from and against any and all losses, claims, liabilities, obligations, damages,
penalties, suits, actions, judgments, costs, taxes, disbursements and expenses,
of any kind or nature (including fees relating to the cost of investigating,
defending and otherwise addressing any of the foregoing, including reasonable
fees and expenses of legal counsel selected by any Indemnitee, whether or not
suit is brought), whether direct, indirect or consequential and whether based on
any federal, state or foreign laws, statutes, rules or regulations (including
securities and commercial laws, statutes, rules or regulations and environmental
laws), on common law or equitable cause or on contract or otherwise, that may be
imposed on, incurred by or asserted against any Indemnitee in any way related to
or arising from or alleged to arise from this Agreement or the Collateral, or in
any way related to or arising from or alleged to arise from the execution,
delivery, performance, administration or enforcement of this Agreement,
including any of the foregoing relating to the violation of, noncompliance with
or liability under, any law applicable to or enforceable against any Company or
any of its Affiliates or any of the Pledged Collateral, IN ALL CASES, WHETHER OR
NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE,
CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE; provided, no Indemnitee
will be entitled to indemnification hereunder of any such losses, claims,
liabilities, obligations, damages, penalties, suits, actions, judgments, costs,
taxes, disbursements and expenses which result from the gross negligence or
willful misconduct of such Indemnitee as determined by a final, nonappealable
decision of a court of competent jurisdiction. To the extent that the
undertakings to defend, indemnify, pay and hold harmless set forth in this
Section 18(j) may be unenforceable in whole or in part because they are
violative of any law or public policy, the Company shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all indemnified amounts incurred by the Indemnitees
or any of them. All of the agreements in this Section 18(j) will survive and
remain operative and in full force and effect regardless of the repayment of the
Obligations, the termination of this Agreement or the resignation or removal of
the Agent.

 

(k) Nothing in this Agreement shall be construed to subject the Agent or any
Secured Party to liability as an officer or director of the Company or a partner
in any of the Company’s direct or indirect subsidiaries that is a partnership or
as a member in any of the Company direct or indirect subsidiaries that is a
limited liability company, nor shall the Agent or any Secured Party be deemed to
have assumed any obligations under any partnership agreement or limited
liability company agreement, as applicable, of any the Company or any of its
direct or indirect subsidiaries or otherwise, unless and until the Agent or any
such Secured Party, as applicable, exercises its right to be substituted for the
Company as a partner or member, as applicable, pursuant hereto.

 

(l) To the extent that the grant of the security interest in the Collateral and
the enforcement of the terms hereof require the consent, approval or action of
any partner or member, as applicable, of the Company or any direct or indirect
subsidiary of the Company or compliance with any provisions of any of the
Organizational Documents, the Company hereby grants such consent and approval
and waive any such noncompliance with the terms of said documents.

 

 15 

 

 

(m) The Company and each Secured Party is subject to the requirements of the USA
PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001))
(the “Patriot Act”) and the Agent (for itself and not on behalf of any Secured
Party), hereby notifies all future Secured Parties, including subsequent
assignees or transferees, that pursuant to the requirements of the Patriot Act,
it is required to obtain, verify and record information that identifies the
Secured Party, which information includes the name and address of the Secured
Party and other information that will allow the Agent, to identify the Secured
Party in accordance with the Patriot Act. For a non-individual person such as a
business entity, a charity, a trust or other legal entity the Agent will ask for
documentation to verify its formation and existence as a legal entity. The Agent
may also ask to see financial statements, licenses, identification and
authorization documents from individuals claiming authority to represent the
entity or other relevant documentation. The Secured Party shall provide such
information and take such actions as are requested by the Agent in order to
maintain compliance with the Patriot Act.

 

(n) In no event shall the Agent be responsible or liable for any failure or
delay in the performance of its obligations hereunder directly or indirectly
caused by events beyond its control, including general labor disputes, acts of
war or terrorism, civil or military disturbances, nuclear or natural
catastrophes or acts of God, and interruptions, losses or malfunctions of
utilities, communications or computer (software and hardware) services;
provided, however, that the Agent, as the case may be, shall use reasonable
efforts which are consistent with accepted practices in the banking industry to
resume performances as soon as practicable under the circumstances.

 

(o) Section headings herein have been inserted for convenience of reference
only, are not to be considered a part of this Agreement and will in no way
modify or restrict any of the terms or provisions hereof.

 

(p) Each Secured Party signatory to this Agreement on the date hereof hereby
represents and warrants to the Agent (solely as to itself, and not as to any
other Secured Party) that (x) as of the date hereof, the outstanding amounts
under the Credit Agreements held by such Secured Party is set forth on Schedule
II hereto and (y) on or prior to the date of this Agreement, it has not assigned
all or any portion of its Notes to any Person, except any Person that is listed
on Schedule II attached hereto.

 

[Remainder of page intentionally left blank; signature page follows]

 

 16 

 

 

IN WITNESS WHEREOF, Company has caused this Agreement to be signed, sealed and
delivered by its duly authorized representative on the day and year first above
written.

 

  Company:       PACIFIC ETHANOL, INC.       By: /s/ Neil M. Koehler   Name:
Neil M. Koehler   Title: President and Chief Executive Officer       Accepted:  
    Secured Party:       COBANK, ACB       By: /s/ Janet Downs   Name: Janet
Downs   Title: Vice President

 

 17 

 

 

SCHEDULE I

 

TO SECURITY AGREEMENT

 

Pledgor

 

Issuer

 

Class of

Equity

Interest

 

Certificate

No.

 

Par Value

Per Share

 

Number

of Shares

 

Percentage

of Issuer’s

Equity

Interests

 

Percentage

of Issuer’s

Outstanding

Shares of

Common

Stock

Pledged

Pacific Ethanol, Inc.  PE OP CO., a Delaware corporation  Common Stock  7  
$0.001   1,000         100%           100%

 

Company’s type of organization: Corporation

 

Company’s jurisdiction of organization: Delaware

 

Company’s Legal Name: Pacific Ethanol, Inc.

 

Company’s Federal Taxpayer Identification Number: 41-2170618

 

Company’s organizational identification number: 3877538

 

Company’s chief executive office or principal place of business: 400 Capital
Mall, Suite 2060, Sacramento, CA 95814.

 

 

18