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EXHIBIT 10.5

 
 
 
[FORM OF]
DISTILLERS GRAINS MARKETING AGREEMENT
([___________] PROJECT)
 
by and between
 
PACIFIC ETHANOL [__________], LLC
 
and
 
PACIFIC AG. PRODUCTS, LLC
 
 
 
 
 
Dated as of June 29, 2010
 
 
 
 

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TABLE OF CONTENTS
 

ARTICLE I DEFINITIONS; INTERPRETATION 1       1.1 Definitions  1 1.2
Interpretation  5       ARTICLE II MARKETING ACTIVITIES 5      
2.1
Bilateral Transactions 5
2.2
Storage 6
2.3
Obligations of Project Company 6
2.4
Back-to-Back Transactions 7
2.5
Netting  7
2.6
Title; Delivery Point; Nominations; Measurement 7      
ARTICLE III PAYMENTS
8       3.1 Fees and Payments 8 3.2 Overdue Payments; Billing Dispute  9 3.3
Audit  9      
ARTICLE IV TERM; TERMINATION
10      
4.1
Term  10
4.2
Termination by PAP  10
4.3
Termination by Project Company 10
4.4
Change of Control  11
4.5
Effect of Termination  11      
ARTICLE V INSURANCE
11       5.1 PAP Insurance  11 5.2 PAP Insurance Premiums and Deductibles  12  
    ARTICLE VI LIMITATIONS ON LIABILITY 12       6.1
No Consequential or Punitive Damages 
12      
ARTICLE VII INDEMNIFICATION
13       7.1 Project Company’s Indemnity  13 7.2 PAP’s Indemnity 13      
ARTICLE VIII REPRESENTATIONS AND WARRANTIES
13      
ARTICLE IX FORCE MAJEURE
13       9.1
Definition 
13

 
 
 
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9.2 Effect  14 9.3 Limitations  14      
ARTICLE X DISPUTE RESOLUTION
14      
10.1
Attempts to Settle 14
10.2
Resolution by Expert  15
10.3
Arbitration  15
10.4
Consequential and Punitive Damages  15
10.5
Finality and Enforcement of Decision 15
10.6
Costs 15
10.7
Continuing Performance Obligations  15      
ARTICLE XI CONFIDENTIALITY
16    
ARTICLE XII ASSIGNMENT AND TRANSFER
16    
ARTICLE XIII MISCELLANEOUS
16      
13.1
Entire Agreement 
16 13.2 Counterparts  16 13.3 Survival  16 13.4 Severability  17 13.5 Governing
Law  17 13.6 Binding Effect  17 13.7 Notices  17 13.8 Amendment  18 13.9 No
Implied Waiver  18             EXHIBIT      Exhibit A:   Form of Guaranty  
Exhibit B:  Operating Protocol  

 
 
 
                    
                    
 
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This DISTILLERS GRAINS MARKETING AGREEMENT (as amended, amended and restated,
supplemented or otherwise modified from time to time, this “Agreement”) is
entered into by and between PACIFIC ETHANOL [__________], LLC, a Delaware
limited liability company (“Project Company”), and PACIFIC AG. PRODUCTS, LLC, a
California limited liability company (“PAP”), as of June 29, 2010. Project
Company and PAP are each individually referred to herein as a “Party”, and
collectively are referred to herein as the “Parties”.
 
RECITALS
 
A.           PAP provides marketing services for Distillers Grains (as defined
below) from the denatured fuel ethanol production facilities owned by
subsidiaries of Pacific Ethanol, Inc., a Delaware corporation (“PEI”).
 
B.           Project Company owns an approximately [__] million gallons-per-year
denatured fuel ethanol production facility in [________], [________] (the
“Facility”) and Project Company has requested that PAP provide Distillers Grains
marketing services for the Facility.
 
C.           PAP desires to provide such marketing services in accordance with
and subject to the terms and conditions of this Agreement.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the agreements and covenants hereinafter set
forth, and intending to be legally bound, the Parties hereto covenant and agree
as follows:
 
ARTICLE I
DEFINITIONS; INTERPRETATION
 
1.1   Definitions.  The following terms shall have the meanings set forth below
when used in this Agreement:
 
“Act of Insolvency” means, with respect to any Person, any of the
following:  (a) commencement by such Person of a voluntary proceeding under any
jurisdiction’s bankruptcy, insolvency or reorganization law; (b) the filing of
an involuntary proceeding against such Person under any jurisdiction’s
bankruptcy, insolvency or reorganization law which is not vacated within 60 days
after such filing; (c) the admission by such Person of the material allegations
of any petition filed against it in any proceeding under any jurisdiction’s
bankruptcy, insolvency or reorganization law; (d) the adjudication of such
Person as bankrupt or insolvent or the winding up or dissolution of such Person;
(e) the making by such Person of a general assignment for the benefit of its
creditors (assignments for a solvent financing excluded); (f) such Person fails
or admits in writing its inability to pay its debts generally as they become
due; (g) the appointment of a receiver or an administrator for all or a
substantial portion of such Person’s assets, which receiver or administrator, if
appointed without the consent of such Person, is not discharged within 60 days
after its appointment; or (h) the occurrence of any event analogous to any of
the foregoing with respect to such Person occurring in any jurisdiction.
 
 
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“Affiliate” of a specified Person means any corporation, partnership, sole
proprietorship or other Person which directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with the
Person specified. The term “control” means the ownership, either direct or
indirect, of twenty-five percent (25%) or more of the voting securities (or
comparable equity interests) or other ownership interests of a Person, or the
possession, either direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or any other means whatsoever.
 
“Agreement” has the meaning given to such term in the preamble hereto.
 
“Asset Management Agreement” means the Asset Management Agreement, dated as of
June 29, 2010 among Pacific Ethanol Holding Co. LLC, Pacific Ethanol Madera LLC,
Project Company, Pacific Ethanol Stockton, LLC, and Pacific Ethanol
[__________], LLC, as Owners, Pacific Holding as Owner Agent and Pacific
Ethanol, Inc., as Manager, as the same may be amended, supplemented or otherwise
modified from time to time.
 
“Bilateral Transaction” means, with respect to each sale of Distillers Grains
produced at the Facility by Project Company, a transaction entered into by PAP
with one or more Third Parties consisting of one or more forward sales of
Distillers Grains.
 
“Business Day” means any day other than a Saturday, Sunday or a day on which
commercial banks in Sacramento, California or New York, New York are required or
authorized to be closed.
 
“Change of Control” has the meaning ascribed thereto in the Credit Agreement.
 
“Credit Agreement” means the Credit Agreement, dated as of June 25, 2010, by and
among Pacific Ethanol Holding Co. LLC, Pacific Ethanol Madera LLC, Project
Company, Pacific Ethanol Stockton, LLC, and Pacific Ethanol [__________], LLC,
as Borrowers, Pacific Ethanol Holding Co. LLC, as Borrowers’ Agent, WestLB AG,
New York Branch, as the administrative agent and the collateral agent, and the
lenders parties thereto from time to time, as the same may be amended,
supplemented or otherwise modified from time to time.
 
“DDG” means dried distillers grains produced by Project Company at the Facility.
 
“Dispute” means a dispute, controversy or claim.
 
“Distillers Grains” means DDG, WDG and any other form of distillers grain
products produced by Project Company at the Facility from time to time.
 
“Expert” means an expert having sufficient technical expertise to address the
matter subject to a Dispute.
 
“Facility” has the meaning given to such term in the recitals hereto.
 
“Financing Documents” means any and all loan agreements, credit agreements
(including the Credit Agreement), reimbursement agreements, notes, indentures,
bonds, security agreements, pledge agreements, mortgages, guarantee documents,
intercreditor agreements, subscription agreements, equity contribution
agreements and other agreements and instruments relating to the financing (or
refinancing) of the ownership, operation and maintenance of the Facility.
 
 
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“Financing Parties” means the banks, lenders, noteholders and/or other financial
institutions (or an agent or trustee thereof) party to the Financing Documents.
 
“Force Majeure Event” has the meaning set forth in Section 9.1.
 
“Good Industry Practice” means any of the practices, methods and acts engaged in
or approved by a significant portion of the distillers grains production or
marketing (as the case may be) industry during the relevant time period, or any
of the practices, methods and acts which, in the exercise of reasonable judgment
in light of the facts known at the time the decision was made, could have been
expected to accomplish the desired result at a reasonable cost consistent with
good business practices, reliability, safety and expedition. “Good Industry
Practice” is not limited to a single, optimum practice, method or act to the
exclusion of others, but rather is intended to include acceptable practices,
methods or acts generally accepted in the regIOn.
 
“Governmental Authority” means any United States federal, state, municipal,
local, territorial, or other governmental department, commission, board, bureau,
agency, regulatory authority, instrumentality, judicial or administrative body.
 
“Incentive Fee” means, for each Bilateral Transaction, the greater of (i) the
product of 5.0% multiplied by the aggregate amount of the Purchase Price for
such Bilateral Transaction, or (ii) the product of $2.00 multiplied by each ton
of Distillers Grains sold in such Bilateral Transaction.
 
“Incentive Fee (Estimated)” means, for each Bilateral Transaction, the greater
of (i) the product of 5.0% multiplied by the aggregate amount of the Purchase
Price (Estimated) for such Bilateral Transaction, or (ii) the product of $2.00
multiplied by each ton of Distillers Grains sold in such Bilateral Transaction.
 
“Law” means any law, statute, act, legislation, bill, enactment, policy, treaty,
international agreement, ordinance, judgment, injunction, award, decree, rule,
regulation, interpretation, determination, requirement, writ or order of any
Governmental Authority.
 
“Liabilities” has the meaning given to such term in Section 7.1.
 
“Monthly Date” means the last Business Day of each calendar month.
 
“NewCo” means New PE Holdco LLC, a Delaware limited liability company and the
indirect owner on the date hereof of all the equity interests in Project
Company.
 
 “PAP” has the meaning given to such term in the preamble hereto.
 
“PAP Indemnified Person” has the meaning given to such term in Section 7.2.
 
 
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“Party” or “Parties” has the meaning given to such term in the preamble hereto.
 
“Payment Adjustment Date” has the meaning given to such term in Section 3.1(b).
 
“PEI” has the meaning given to such term in the recitals hereto.
 
“Person” means and includes natural persons, corporations, limited liability
companies, limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, companies, trusts, banks, trust companies and
other organizations, whether or not legal entities, Governmental Authorities and
any other entity.
 
“Prime Rate” means the rate per annum listed as the “Prime Rate” in the “Money
Rates” section of The Wall Street Journal from time to time.
 
“Project Company” has the meaning given to such term in the preamble hereto.
 
“Project Company Indemnified Person” has the meaning given to such term in
Section 7.1.
 
“Purchase Price” means, with respect to each Bilateral Transaction, the
aggregate gross payments received by PAP (or, if the applicable Third Party
defaults in its payment obligations to PAP in respect of such Bilateral
Transaction, the aggregate amount of gross payments which PAP was entitled to
receive) for such Bilateral Transaction from the applicable Third Party.
 
“Purchase Price (Estimated)” means, with respect to each Bilateral Transaction,
the aggregate amount of gross payments anticipated to be received by PAP for
such Bilateral Transaction from the applicable Third Party (as reasonably
determined by PAP).
 
“Tonnage Fees” means all documented fees or taxes payable to any Governmental
Authority in connection with the tonnage of Distillers Grains or Syrup produced
or marketed within a given jurisdiction.
 
“Tonnage Fees (Estimated)” means all estimated fees or taxes payable to any
Governmental Authority in connection with the tonnage of Distillers Grains or
Syrup produced or marketed within a given jurisdiction.
 
“Third Party” means any Person (other than PEI or a subsidiary thereof) that
enters into a Bilateral Transaction with PAP.
 
“Transportation Costs” means, for each Bilateral Transaction, all actual,
out-of-pocket and documented costs and other expenses incurred by or on behalf
of PAP in connection with the transportation of Distillers Grains to the
applicable Third Party, including truck, rail, barge and/or terminal costs.
 
“Transportation Costs (Estimated)” means, for each Bilateral Transaction, the
aggregate amount of Transportation Costs anticipated to be incurred by PAP in
connection with such Bilateral Transaction (as reasonably determined by PAP).
 
 
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“Syrup” means corn condensed distiller’s solubles produced by Project Company at
the Facility.
 
“WDG” means wet distillers grains produced by Project Company at the Facility.
 
1.2   Interpretation.  The following interpretations and rules of construction
shall apply to this Agreement: (a) titles and headings are for convenience only
and will not be deemed part of this Agreement for purposes of interpretation;
(b) unless otherwise stated, references in this Agreement to “Sections” or
“Articles” refer, respectively, to Sections or Articles of this Agreement; (c)
“including” means “including, but not limited to”, and “include” or “includes”
means “include, without limitation” or “includes, without limitation”; (d)
“hereunder”, “herein”, “hereto” and “hereof’, when used in this Agreement, refer
to this Agreement as a whole and not to a particular Section or clause of this
Agreement; (e) in the case of defined terms, the singular includes the plural
and vice versa; (f) unless otherwise indicated, each reference to a particular
Law is a reference to such Law as it may be amended, modified, extended,
restated or supplemented from time to time, as well as to any successor Law
thereto; (g) unless otherwise indicated, references to agreements shall be
deemed to include all subsequent amendments, supplements and other modifications
thereto; and (h) unless otherwise indicated, each reference to any Person shall
include such Person’s successors and permitted assigns.
 
ARTICLE II
MARKETING ACTIVITIES
 
2.1   Bilateral Transactions.
 
(a)   Subject to the terms hereof, Project Company hereby grants PAP the
exclusive right to market, purchase and sell all of Project Company’s Distillers
Grains (which, as of the date hereof, is approximately [__],000 tons-per-year),
provided, that during the continuance of any default by PAP that would allow
Project Company to terminate this Agreement pursuant to Section 4.3 or during
the 30-day cure period provided in Section 4.3(c) (notwithstanding such cure
period), if PAP is not performing its obligations with respect to marketing the
Project Company’s Distillers Grains or during the continuance of any Force
Majeure Event (including the effects thereof) that renders PAP unable to perform
its obligations under this Agreement, then Project Company shall have the right
to engage any other Person to market, purchase and sell the Project Company’s
Distillers Grains and PAP shall not be entitled to any compensation (including
Incentive Fees) with respect to any replacement services provided by such
Person. PAP shall use its reasonable commercial efforts to solicit, negotiate
and enter into, and PAP shall perform, Bilateral Transactions with Third
Parties. PAP shall have absolute discretion in the solicitation, negotiation,
administration (including the collection of payments), enforcement and execution
of Bilateral Transactions and all sales of Distillers Grains produced by the
Facility shall be effectuated by Bilateral Transactions. PAP shall not enter
into any transaction in respect of the Project Company’s Distillers Grains that
is not a Bilateral Transaction without the consent of the Project Company, which
consent may be withheld by Project Company in its discretion.  Project Company
hereby grants PAP the power and authority necessary to perform its obligations
and exercise its rights hereunder.
 
 
 
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(b)   As further described in Sections 2.3, 2.4 and 2.6 below and except as
otherwise provided herein, Project Company shall provide Distillers Grains to
PAP free and clear of all liens and encumbrances.
 
(c)   PAP shall perform its obligations hereunder and under Bilateral
Transactions in accordance with this Agreement, applicable Laws and Good
Industry Practice and shall use commercially reasonable efforts to maximize the
proceeds generated from the sale of Distillers Grains.
 
2.2   Storage.  PAP acknowledges that Project Company has only limited storage
capacity and PAP agrees that it shall take any Distillers Grains requested by
PAP within two days (or such longer period of time as may reasonably be agreed
by Project Company) of the time that Project Company has made such Distillers
Grains available to PAP.
 
2.3   Obligations of Project Company.
 
(a)   Project Company shall provide PAP with all information reasonably
requested by PAP, and Project Company shall assist PAP as reasonably requested
in the solicitation, negotiation and performance of Bilateral Transactions.
 
(b)   Notwithstanding anything to the contrary herein, Project Company shall not
be responsible for the delivery of any Distillers Grains to PAP during any
periods of scheduled Facility maintenance (unless and to the extent the
applicable Distillers Grains is available to be delivered to PAP from Project
Company’s storage facilities); provided, that, at any time that PEI or one of
its Affiliates is not the asset manager pursuant to the Asset Management
Agreement (or any successor agreement), PAP shall have received at least ten
Business Days prior notice of such scheduled maintenance (it being acknowledged
and agreed that if PAP does not receive at least ten Business Days prior notice,
then such maintenance activity shall be deemed to be a mechanical breakdown and
covered by clause (c) below for purposes hereof.
 
(c)   If on any day Project Company is unable to perform its obligations to
deliver Distillers Grains under this Agreement due to a mechanical breakdown
(including a forced outage of the Facility) that is not a Force Majeure Event
and such mechanical breakdown has continued for more than three consecutive
days, PAP shall, at Project Company’s option and at Project Company’s expense,
and provided that, at any time that PEI or one of its Affiliates is not the
asset manager pursuant to the Asset Management Agreement (or any successor
agreement), Project Company provides PAP with prompt notice of its intent to
exercise such option, use commercially reasonable efforts to identify and
procure replacement distillers grains to be delivered to the Third Party under
the applicable Bilateral Transaction. In such event, if and only if the Parties
reach agreement as to an alternative delivery point, PAP shall acquire and
deliver replacement distillers grains in a quantity sufficient to meet the
contract quantity of such Bilateral Transaction at such alternate point (and
Project Company shall be responsible for all transportation costs associated
therewith). In all other instances, Project Company shall be responsible for any
damages incurred by PAP in connection with PAP’s failure to perform under the
applicable Bilateral Transaction as a result of such mechanical breakdown (it
being acknowledged and agreed that PAP shall use commercially reasonable efforts
to mitigate the effects of any such mechanical breakdown and Project Company’s
resulting inability to deliver Distillers Grains.
 
 
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(d)   At the request of the Project Company, PAP will cause PEI to execute and
deliver and maintain in full force and effect a guaranty in the form of Exhibit
A hereto.
 
2.4   Back-to-Back Transactions.  Each Bilateral Transaction undertaken by PAP
shall immediately and automatically, without necessity of further documentation
or any action whatsoever by any of the Parties, create and cause to be
undertaken according to the terms of this Agreement an equivalent transaction in
terms of the obligation to deliver Distillers Grains, the quantity of Distillers
Grains sold and the timing for the delivery of such Distillers Grains by Project
Company with PAP (as if PAP were the Third Party).
 
2.5   Netting.  Netting of amounts due in respect of Bilateral Transactions
between PAP and a Third Party may arise in circumstances in which PAP owes
amounts to such Third Party in respect of Bilateral Transactions and, at the
same time, such Third Party owes amounts to PAP in respect of Bilateral
Transactions. In such circumstances, the party owing the greater amount may pay
such amount to the other party as reduced by the amount owed to it and both
parties will be deemed to have satisfied their obligations thereby. When such
netting occurs, for purposes of this Agreement, for all Bilateral Transactions
that have been subject to such netting arrangements, PAP shall be deemed to have
paid amounts owed by it and to have received amounts owed to it.
 
2.6   Title; Delivery Point; Nominations; Measurement.
 
(a)   Project Company shall deliver Distillers Grains to PAP in respect of
Bilateral Transactions (or corresponding back-to-back transactions under Section
2.4) via bucket-loader into a receiving truck that will remove such Distillers
Grains from the Facility. Title to, risk of loss with respect to and the
obligation to transport such Distillers Grains shall pass from Project Company
to PAP at the point that such Distillers Grains drop into the applicable
receiving truck. The Parties acknowledge that the quality and quantity of
Distillers Grains may degrade or shrink after such Distillers Grains is
delivered by Project Company to PAP at such delivery point, and the Parties
acknowledge that the risk of such degradation or shrinkage and all other risk of
loss shall be borne by PAP.
 
(b)   PAP and Project Company shall use the previously agreed upon operating
protocol with respect to the mechanics, timing and process for (i) PAP to
communicate to Project Company its Distillers Grains requirements on a monthly,
weekly and daily basis, (ii) determining the quantity of Distillers Grains to be
stored by Project Company in its storage facilities, and (iii) implementing the
Distillers Grains sales contemplated by this Agreement. By mutual agreement,
such operating protocol shall be updated from time to time thereafter. A copy of
such protocol is attached hereto as Exhibit B.
 
 
 
 
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ARTICLE III
PAYMENTS
 
3.1   Fees and Payments.
 
(a)   Within ten days after the date Project Company delivers Distillers Grains
to PAP in accordance with Section 2.6(a), PAP shall pay to Project Company an
amount equal to (i) the Purchase Price (Estimated) with respect to the Bilateral
Transaction to which such delivery of Distillers Grains relates minus (ii) the
aggregate amount of Transportation Costs (Estimated) with respect to such
Bilateral Transaction minus (iii) the aggregate amount of the Incentive Fee
(Estimated) with respect to such Bilateral Transaction minus Tonnage Fees
(Estimated) with respect to such Bilateral Transaction (it being acknowledged
that PAP shall retain for its own account the amount of such Transportation
Costs (Estimated), Incentive Fee (Estimated) and Tonnage Fees (Estimated), and
that such amount represents an estimate of the net amounts to be paid to Project
Company in connection with such Bilateral Transaction). In connection with each
such payment, PAP shall deliver to Project Company a statement detailing its
calculations of the applicable Purchase Price (Estimated), the applicable
Transportation Costs (Estimated), the applicable Incentive Fee (Estimated) and
the applicable Tonnage Fees (Estimated).
 
(b)   Within the first five Business Days of each calendar month (each such
date, a “Payment Adjustment Date”), the Parties shall reconcile and “true-up”
the actual Purchase Price, Transportation Costs, Incentive Fees and Tonnage Fees
for all Bilateral Transactions entered into since the previous Payment
Adjustment Date, with the intent of the Parties being that PAP shall make up the
difference of any “under estimations” and Project Company shall refund any “over
estimations”. For example, if there are “under estimations” then PAP shall pay
to Project Company an amount equal to:
 
(i)   (A) the Purchase Price with respect to such Bilateral Transaction minus
(B) the Purchase Price (Estimated) with respect to such Bilateral Transaction
(to the extent actually paid by PAP to Project Company pursuant to Section
3.1(a)), minus
 
(ii)   (A) the Transportation Costs with respect to each such Bilateral
Transaction minus (B) the Transportation Costs (Estimated) with respect to such
Bilateral Transaction, minus
 
(iii)   (A) the Incentive Fee with respect to each such Bilateral Transaction
minus (B) the Incentive Fee (Estimated) with respect to such Bilateral
Transaction, minus
 
(iv)   (A) the Tonnage Fees with respect to each such Bilateral Transaction
minus (B) the Tonnage Fees (Estimated) with respect to such Bilateral
Transaction.
 
Each such monthly reconciliation or “true-up” payment shall be paid by PAP or
Project Company (as applicable) no later than five Business Days after the
applicable Payment Adjustment Date. Each Party acknowledges that Project Company
(and not PAP) bears the risk of non-payment by a Third Party in connection with
a Bilateral Transaction.
 
 
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(c)   Notwithstanding anything to the contrary in clause (a) or (b) above, if
Project Company defaults in its obligation to provide Distillers Grains to PAP
in accordance with the terms of this Agreement (including, without limitation,
as contemplated by Section 2.3(c)), then PAP shall be entitled to set-off and
deduct from current and/or future payments owed to PAP by Project Company
(including the estimated payments pursuant to clause (a) above and the
reconciliation and “true-up” payments pursuant to clause (b) above) an amount
equal to, as applicable, (i) the amount of damage payments owed by PAP to the
applicable Third Party for failure to provide such Distillers Grains and (ii)
the cost of any replacement Distillers Grains procured by PAP to satisfy the
requirements of any Bilateral Transaction, each as a result of Project Company’s
failure to perform hereunder net of any revenue received in respect of such
Bilateral Transaction.
 
3.2   Overdue Payments; Billing Dispute.  If Project Company or PAP, in good
faith, disputes the amount of any payment received by it or to be paid by it or
set-off pursuant to Section 3.1 above, the disputing Party shall immediately
notify the other Party of the basis for the dispute. The Parties will then meet
and use their best efforts to resolve any such dispute. If any amount is
ultimately determined to be due to or permitted to be set-off by Project Company
or PAP (as the case may be), to the extent not previously paid or set-off, (a)
PAP (or the Project Company as the case may be) shall pay such amount to Project
Company within five Business Days of such determination or (b) PAP (or the
Project Company as the case may be) may then set-off such amount (as the case
may be). If any Party shall fail to make any payment when due hereunder, such
overdue payment shall accrue interest at the Prime Rate plus 2% from the date
originally due until the date paid.
 
3.3   Audit.  Notwithstanding the payment of any amount pursuant to this Article
III, Project Company shall remain entitled (upon reasonable prior notice, at
reasonable times and at PAP’s corporate offices) and the administrative agent
under the Credit Agreement (and its consultants, as directed by the
administrative agent) shall be entitled (upon reasonable prior notice, not more
than once per calendar quarter and at PAP’s corporate offices) to conduct a
subsequent audit and review of (a) all Bilateral Transactions and related
records to verify the amount of gross payments, Incentive Fees, Transportation
Costs and damage payments and (b) the determination and calculation of the
Purchase Price, in each case for a period of two years from and after the
applicable Payment Adjustment Date. If, pursuant to such audit and review, it is
determined that any amount previously paid by PAP to Project Company did not
constitute all of the amounts which should have been paid to Project Company,
Project Company shall advise PAP indicating such amount and reason the amount
should have been paid to Project Company and, subject to the next two sentences,
PAP shall pay such amount to Project Company within five Business Days of such
request along with interest accrued at the Prime Rate plus 5% from the date
originally due until the date paid. If the Parties do not agree with respect to
any item so noted, the Parties will then meet and use their best efforts to
resolve the dispute. If Parties are not able to resolve issues raised by such an
audit and review, any disputed items will be resolved in accordance with the
provisions of Article IX.
 
 
 
 
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ARTICLE IV
TERM; TERMINATION
 
4.1   Term.  This Agreement shall be effective on the date hereof and, unless
earlier terminated in accordance with its terms, shall continue in effect until
and including the twelve-month anniversary of the date of this Agreement,
provided, that Project Company may extend this Agreement for additional
twelve-month periods, in each case by written notice to PAP delivered not less
than 90 days prior to the end of the original or renewal term.
 
4.2   Termination by PAP.  PAP may terminate this Agreement by written notice to
Project Company, upon the occurrence of any of the following events, provided,
that no such notice shall be required for a termination pursuant to clause (b)
of this Section 4.2:
 
(a)           the failure by Project Company to make any payment, deposit or
transfer required hereunder within 30 Business Days after the date such payment,
deposit or transfer is required to be made;
 
(b)           the occurrence of an Act of Insolvency with respect to Project
Company; or
 
(c)           the failure of Project Company to perform any of its material
obligations under this Agreement and such failure continues for 30 days after
receipt of written notice from PAP of such failure; provided, that such 30-day
period shall be extended for up to an aggregate of 90 days so long as Project
Company is diligently attempting to cure such failure.
 
4.3   Termination by Project Company.  Project Company may terminate this
Agreement by written notice to PAP, upon the occurrence of any of the following
events, provided, that no such notice shall be required for a termination
pursuant to clause (b) of this Section 4.3:
 
(a)           the failure by PAP to make any payment, deposit or transfer
required hereunder within fifteen Business Days after the date such payment,
deposit or transfer is required to be made;
 
(b)           the occurrence of an Act of Insolvency with respect to PAP; or
 
(c)           the failure of PAP to perform any of its material obligations
under this Agreement and such failure continues for 30 days after receipt of
written notice from Project Company of such failure; provided, that such 30-day
period shall be extended for up to an aggregate of 90 days so long as PAP is
diligently attempting to cure such failure.
 
 
 
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4.4   Change of Control.  This Agreement shall terminate 45 days after the
occurrence of (i) any Change of Control with respect to Project Company or any
transfer, assignment, sale or other disposition of more than a majority of the
membership interests in PAP to any Person that is not an Affiliate of PEI or
(ii) any transfer, assignment, sale or other disposition of all or substantially
all of the assets comprising the Facility, unless in each case the Parties
mutually agree to the contrary.
 
4.5   Effect of Termination.  No termination under this Article IV shall release
any of the Parties from any obligations arising hereunder prior to such
termination, including payment and obligations under any Bilateral Transaction
(or such Bilateral Transaction’s corresponding back-to-back transaction arising
under Section 2.4), that are not fully performed as of the date of such
termination. The exercise of the right of a Party to terminate this Agreement,
as provided herein, does not preclude such Party from exercising other remedies
that are provided herein or are available at law or in equity; provided,
however, that no Party shall have a right to terminate, revoke or treat this
Agreement as repudiated other than in accordance with the other provisions of
this Agreement; and provided, further, that the Parties’ respective rights upon
termination shall be subject to the liability limitations of Article V.  Except
as otherwise set forth in this Agreement, remedies are cumulative, and the
exercise of, or the failure to exercise, one or more remedies by a Party shall
not, to the extent provided by Law, limit or preclude the exercise of, or
constitute a waiver of, other remedies by such Party.
 
ARTICLE V
INSURANCE
 
5.1   PAP Insurance.  Without limiting any of the other obligations or
liabilities of PAP under this Agreement, PAP shall at all times carry and
maintain or cause to be carried and maintained, the minimum insurance coverage
set forth in this Section:
 
(a)   PAP shall maintain or cause to be maintained (i) Workers’ Compensation
insurance in compliance with the workers’ compensation laws of the State of
Oregon as extended by the Broad Form All States Endorsements, the United States
Longshoreman’s and Harbor Workers’ Coverage Endorsements on an if-any-exposure
basis and the Voluntary Compensation Coverage Endorsement, and (ii) Employer’s
Liability (including Occupational Disease) coverage with limits of not less than
$1,000,000, which shall cover all of PAP’s employees engaged in providing
services hereunder.
 
(b)   PAP shall maintain or cause to be maintained automobile liability
insurance for owned (if any), non-owned and hired vehicles with combined single
limits for bodily injury/property damage not less than $1,000,000 per occurrence
and containing appropriate no-fault insurance provisions wherever applicable.
 
(c)   PAP will maintain or cause to be maintained commercial general liability
insurance with a limit for bodily injury/property damage of not less than
$1,000,000 per occurrence and $2,000,000 in the annual aggregate. Such coverage
shall include premises/operations, explosion, collapse and underground property
damage, broad form contractual, independent contractors, products/completed
operations (including operator errors and omissions), broad form property
damage, personal injury and incidental professional liability (if not covered
under product/completed operations and if commercially available).
 
 
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(d)   PAP shall maintain or cause to be maintained umbrella liability insurance
providing coverage limits in excess of those set forth in Section (a), (b) and
(c) above. The limits of this umbrella coverage shall not be less than
$10,000,000 per occurrence and in the annual aggregate.
 
(e)   PAP shall maintain or cause to be maintained pollution legal liability for
sudden and accidental pollution for physical damage and bodily injury to third
parties in an amount of $3,000,000 per occurrence and in the annual aggregate.
 
The terms and conditions of all insurance policies (including the amount, scope
of coverage, deductibles, and self-insured retentions) shall be acceptable in
all respects as of the effective date of this Agreement. All insurance carried
pursuant to this Section shall conform to the relevant provisions of this
Agreement and be with insurance companies which are rated “A-, X” or better by
Best’s Insurance Guide and Key Ratings, or other insurance companies of
recognized responsibility satisfactory to Project Company. Project Company shall
be furnished with satisfactory evidence that the foregoing insurance is in
effect and Project Company shall be notified 30 calendar days prior to the
cancellation or material change of any such coverage. Coverage for the insurance
under Section (c) and (d) above shall be written on a claims made basis provided
that if the policy is not renewed, PAP shall obtain for the benefit of Project
Company an extended reporting period coverage or “tail” of at least three years
past the final day of coverage of such policy. PAP shall provide Project Company
with evidence that such extended reporting period coverage or “tail” has been
obtained. PAP agrees to ensure that the insurance policies outlined in this
Section require the insurer to waive subrogation against Project Company, the
Financing Parties and their respective Affiliates together with their respective
officers, directors, Affiliates and employees and all such Persons shall be an
additional insured as their interests may appear with respect to all policies
procured by PAP.
 
5.2   PAP Insurance Premiums and Deductibles.  All premiums for insurance
coverage procured by PAP pursuant to Section 5.1 shall be reimbursed by Project
Company upon demand. PAP shall be liable for the payment of all deductibles on
insurance policies obtained pursuant to Section 5.1, which amounts shall not be
reimbursed by Project Company, provided that, to the extent that a claim under a
policy described in Section 5.1 is attributable to Project Company’s (including
its employees’ or agents’) gross negligence or willful misconduct, Project
Company shall be liable for the entire amount of such deductible. In no event
shall any premiums, deductibles or any losses in excess of insurance coverage be
reimbursed by Project Company hereunder.
 
ARTICLE VI
LIMITATIONS ON LIABILITY
 
6.1   No Consequential or Punitive Damages.  In no event shall either Party be
liable to any other Party by way of indemnity or by reason of any breach of
contract or of statutory duty or by reason of tort (including negligence or
strict liability) or otherwise for any loss of profits, loss of revenue, loss of
use, loss of production, loss of contracts or for any incidental, indirect,
special or consequential or punitive damages of any other kind or nature
whatsoever that may be suffered by such other Party, including any losses for
which such other Party has insurance to the extent proceeds of insurance have
been recovered for such losses.
 
 
 
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ARTICLE VII
INDEMNIFICATION
 
7.1   Project Company’s Indemnity.  Project Company shall defend, indemnify and
hold harmless PAP and its Affiliates (and each officer, director, employee,
shareholder, partner, member or agent of PAP and its Affiliates) (each, a
“Project Company Indemnified Person”) from and against any and all third party
claims, actions, damages, expenses (including reasonable and documented
attorneys’ fees and expenses), losses, settlements or liabilities (collectively,
“Liabilities”) incurred or asserted against any Project Company Indemnified
Person (a) as a result of any failure on the part of Project Company to perform
Project Company’s obligations under this Agreement (including with respect to
any back-to-back transaction under Section 2.4), or (b) arising out of or in any
way connected with the grossly negligent acts or omissions of Project Company or
its Affiliates (other than PAP).
 
7.2   PAP’s Indemnity.  PAP shall defend, indemnify and hold harmless Project
Company and its Affiliates (and each officer, director, employee, shareholder,
partner, member or agent of Project Company and their Affiliates) (each, a “PAP
Indemnified Person”) from and against any and all third party Liabilities
incurred or asserted against any PAP Indemnified Person (a) as a result of any
failure on the part of PAP to perform its obligations under this Agreement
(including with respect to any Bilateral Transaction), or (b) arising out of or
in any way connected with the grossly negligent acts or omissions of PAP or its
Affiliates (other than Project Company).
 
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
 
Each Party represents that (i) it is duly organized under its jurisdiction of
formation and in good standing in each jurisdiction where its failure to so
qualify could have a material adverse affect on its ability to perform its
obligations hereunder, (ii) it has all necessary power and authority to enter
into this Agreement, (iii) it has duly authorized, executed and delivered this
Agreement and (iv) this Agreement constitutes a legal, valid and binding
obligation of such Party enforceable in accordance with its terms, subject to
bankruptcy, reorganization, moratorium or other similar laws affecting the
enforcement of the rights of creditors generally and subject to general
principles of equity.
 
ARTICLE IX
FORCE MAJEURE
 
9.1   Definition.  As used herein, “Force Majeure Event” means any cause(s)
which render(s) a Party wholly or partly unable to perform its obligations under
this Agreement (other than obligations to make payments when due), and which are
neither reasonably within the control of such Party nor the result of the fault
or negligence of such Party, and which occur despite all reasonable attempts to
avoid, mitigate or remedy, and shall include acts of God, war, riots, civil
insurrections, cyclones, hurricanes, floods, fires, explosions, earthquakes,
lightning, storms, chemical contamination, epidemics or plagues, acts or
campaigns of terrorism or sabotage, blockades, embargoes, accidents or
interruptions to transportation, trade restrictions, acts of any Governmental
Authority after the date of this Agreement, strikes and other labor difficulties
(other than with respect to its own employees), and other events or
circumstances beyond the reasonable control of such Party. Mechanical breakdown
(including a forced outage of the Facility) that continues for more than five
consecutive days shall be deemed not to be “Force Majeure Event” unless such
mechanical breakdown resulted from or was caused by a separate “Force Majeure
Event.”
 
 
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9.2   Effect.  A Party claiming relief as a result of a Force Majeure Event
shall give the other Parties written notice within five Business Days of
becoming aware of the occurrence of the Force Majeure Event, or as soon
thereafter as practicable, describing the particulars of the Force Majeure
Event, and will use reasonable efforts to remedy its inability to perform as
soon as possible. If the Force Majeure Event (including the effects thereof)
continues for fifteen consecutive days, the affected Party shall report to the
other Parties the status of its efforts to resume performance and the estimated
date thereof. If the Force Majeure Event (including the effects thereof)
continues for 180 consecutive days, either Party may terminate this Agreement
for convenience. If the affected Party was not able to resume performance prior
to or at the time of the report to the other Party of the onset of the Force
Majeure Event, then it will report in writing to the other Party when it is
again able to perform. If a Party fails to give timely notice, the excuse for
its non-performance shall not begin until notice is given.
 
9.3   Limitations.  Any obligation(s) of a Party (other than an obligation to
make payments when due) may be temporarily suspended during any period such
Party is unable to perform such obligation(s) by reason of the occurrence of a
Force Majeure Event, but only to the extent of such inability to perform,
provided, that:
 
(a)   the suspension of performance is of no greater scope and of no longer
duration than is reasonably required by the Force Majeure Event; and
 
(b)   the Party claiming the occurrence of the Force Majeure Event bears the
burden of proof.
 
ARTICLE X
DISPUTE RESOLUTION
 
10.1   Attempts to Settle.  In the event that a Dispute between the Parties
arises under, out of or in relation to, this Agreement, the Parties shall
attempt in good faith to settle such Dispute by mutual discussions within
fifteen Business Days after the date that an aggrieved Party gives written
notice of the Dispute to the other Parties. In the event that a Dispute is not
resolved by discussion in accordance with the preceding sentence within the time
period set forth therein, the Parties shall refer the Dispute to their
respective senior officers for further consideration and attempted resolution
within fifteen Business Days after the Dispute has been referred to such
individuals (or such longer period as the Parties may agree).
 
 
 
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10.2   Resolution by Expert.  If the Parties shall have failed to resolve the
Dispute within fifteen Business Days after the date that the Parties referred
the Dispute to their senior officers, then, provided the Parties shall so agree,
the Dispute may be submitted for resolution by an Expert, such Expert to be
appointed by the mutual agreement of the Parties. Proceedings before an Expert
shall be held in Sacramento, California (or any other location agreed to by the
Parties). The Expert shall apply to such proceedings the substantive law of the
State of New York in effect at the time of such proceedings. The decision of the
Expert shall be final and binding upon the Parties. In the event that (a) the
Parties cannot agree on the appointment of an Expert within ten Business Days
after the date that the Parties agreed to submit the Dispute for resolution by
the Expert or (b) the Expert fails to resolve such Dispute within 60 days after
the Parties have submitted such Dispute to the Expert, then any Party may file a
demand for arbitration in writing in accordance with Section 10.3.
 
10.3   Arbitration.  Any Dispute that has not been resolved following the
procedures set forth in Section 10.1 or 10.2 shall be settled by binding
arbitration in Sacramento, California (or any other location agreed to by the
Parties) before a panel of three arbitrators. Such arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association as in effect on the date of execution of this Agreement.
Such arbitration shall be governed by the laws of the State of New York. If
arbitration proceedings have been initiated pursuant to this Section 10.3 and
raise issues of fact or law which, in whole or in part, are substantially the
same as issues of fact or law already pending in arbitration proceedings
involving the applicable Parties, such issues shall be consolidated with the
issues in the ongoing proceedings. THE PARTIES HEREBY AGREE THAT THE PROCEDURES
SET FORTH IN THIS ARTICLE IX SHALL BE THE EXCLUSIVE DISPUTE RESOLUTION
PROCEDURES APPLICABLE TO ANY DISPUTE, CONTROVERSY OR CLAIM UNDER THIS AGREEMENT
AND, EXCEPT AS SET FORTH IN SECTION 10.5, THE PARTIES HEREBY WAIVE ALL RIGHTS TO
A COURT TRIAL OR TRIAL BY JURY WITH RESPECT TO ANY DISPUTE, CONTROVERSY OR CLAIM
UNDER THIS AGREEMENT.
 
10.4   Consequential and Punitive Damages.  Awards of Experts and arbitral
panels shall be subject to the provisions of Article VI.
 
10.5   Finality and Enforcement of Decision.  Any decision or award of an Expert
or a majority of an arbitral panel, as applicable, shall be final and binding
upon the Parties. Each of the Parties agrees that the arbitral award may be
enforced against it or its assets wherever they may be found and that a judgment
upon the arbitral award may be entered in any court having jurisdiction thereof.
 
10.6   Costs.  The costs of submitting a Dispute to an Expert shall be shared
equally among the Parties involved in the Dispute, unless the arbitral panel or
the Expert determines otherwise. The costs of arbitration shall be paid in
accordance with the decision of the arbitral panel pursuant to the Commercial
Arbitration Rules of the American Arbitration Association as in effect on the
date of execution of this Agreement.
 
10.7   Continuing Performance Obligations.  While a Dispute is pending, each
Party shall continue to perform its obligations under this Agreement, unless
such Party is otherwise entitled to suspend its performance hereunder or
terminate this Agreement in accordance with the terms hereof.
 
 
 
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ARTICLE XI
CONFIDENTIALITY
 
Each Party and its Affiliates shall treat as confidential the data and
information in their possession regarding the Facility, the other Parties or any
Affiliate of any other Party, unless: (a) the applicable other Party agrees in
writing to the release of such data or information; (b) such data or information
becomes publicly available other than through the wrongful actions of the
disclosing Party or the disclosing Party’s Affiliate; ( c) such data or
information was in the possession of the receiving Party or the receiving
Party’s Affiliate prior to receipt thereof from the disclosing Party with no
corresponding confidentiality obligation; or (d) such data or information is
required by Law to be disclosed. Notwithstanding the generality of the
foregoing, any Party may disclose data and information to (i) the officers,
directors, managers, partners, members, employees and Affiliates of such Party,
(ii) any successors in interest and permitted assigns of such Party, (iii) any
actual or potential Financing Parties or actual or potential lenders to PEI or
any subsidiary thereof, and (iv) any potential equity investors in PEI or
acquirer of all or any of the equity interests in Newco or any subsidiary
thereof; provided, that any Person who receives confidential data and
information pursuant to an exception contained in clauses (ii) -(iv) of this
Article agrees to similar confidentiality provisions.
 
ARTICLE XII
ASSIGNMENT AND TRANSFER
 
No Party shall assign this Agreement or any of its rights or obligations
hereunder without first obtaining the prior written consent of ( a) in the case
of Project Company, PAP, or (b) in the case of PAP, Project Company, provided,
that any Party shall be entitled to assign its rights hereunder (as collateral
security or otherwise) for financing purposes (including a collateral assignment
to any Financing Parties) without the consent of any other Party.
 
ARTICLE XIII
MISCELLANEOUS
 
13.1   Entire Agreement.  This Agreement contains the entire agreement between
the Parties with respect to the subject matter hereof and supersedes all prior
agreements, negotiations and understandings among the Parties with respect to
such subject matter. Nothing in this Agreement shall be construed as creating a
partnership or joint venture between the Parties.
 
13.2   Counterparts.  This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
agreement.
 
13.3   Survival.  Cancellation, expiration or earlier termination of this
Agreement shall not relieve the Parties of obligations that by their nature
should survive such cancellation, expiration or termination, including remedies,
limitations on liability, promises of indemnity and payment, and
confidentiality. Without limiting the generality of the foregoing, the following
provisions of this Agreement shall survive:  Articles III, VI, VII, X and XI and
Section 13.3, 13.4, 13.5, 13.6, 13.8 and 13.9.
 
 
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13.4   Severability.  In the event anyone or more of the provisions contained in
this Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The Parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic and practical
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
 
13.5   Governing Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
principles of conflicts of laws thereof.
 
13.6   Binding Effect.  This Agreement shall be binding upon and shall inure to
the benefit of the Parties hereto and their respective successors and permitted
assigns. This Agreement is not made for the benefit of any Person or entity not
a party hereto, and nothing in this Agreement shall be construed as giving any
Person or entity, other than the Parties and their respective successors and
permitted assigns, any right, remedy or claim under or in respect of this
Agreement or any provision hereof.
 
13.7   Notices.  All notices or other communications which are required or
permitted hereunder shall be in writing and shall be deemed sufficiently given
(a) upon delivery, if delivered personally, (b) the day the notice is received,
if it is delivered by overnight courier or certified or registered mail, postage
prepaid, or (c) upon the effective receipt of electronic transmission,
facsimile, telex or telegram (with effective receipt being deemed to occur upon
the sender’s receipt of confirmation of successful transmission of such notice
or communication), to the addresses set forth below or such other address as the
addressee may have specified in a notice duly given to sender as provided
herein:
 
If to PAP:
 
Pacific Ag. Products, LLC
31375 Great Western Dr.
Windsor, CO 80550

with a copy to:

Pacific Ag. Products, LLC
c/o Pacific Ethanol, Inc.
400 Capitol Mall
Suite 2060
Sacramento, California  95814
Attention:        Neil Koehler
Telephone:      (530) 750-3017
Facsimile:         (530) 309-4172
 
 
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If to Project Company:
 
Pacific Ethanol [__________], LLC
c/o JT Miller Group LLC
777 Campus Commons Road # 200
Sacramento, California  95825
Attn:                 John Miller
Telephone:      (916) 565-7422
Facsimile:         (916) 565-7423

with a copy, so long as PEI is the “Manager” under the Asset Management
Agreement, to:

Pacific Ethanol, Inc.
400 Capitol Mall, Suite 2060
Sacramento, CA 95814
Attention: General Counsel
Facsimile:         (916) 446-3936

13.8   Amendment.  No Party hereto shall be bound by any termination, amendment,
supplement, waiver or modification of any term hereof unless such Party shall
have consented thereto in writing.
 
13.9   No Implied Waiver.  No delay or failure on the part of any Party in
exercising any rights hereunder, and no partial or single exercise thereof,
shall constitute a waiver of such rights or of any other rights hereunder.
 
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
 
 
 
 
 
 
 
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IN WITNESS WHEREOF, this Distillers Grains Marketing Agreement has been duly
executed by the Parties hereto as of the date first written above.
 
 

  PACIFIC ETHANOL [__________], LLC          
By:  _______________________________      Name:   Title:           PACIFIC AG.
PRODUCTS, LLC           By:  /s/ Neil Koehler            Name: Neil Koehler  
Title: CEO

 
 
 
 
 
 
 
[Signature Page to Distillers Grains Marketing Agreement – Boardman]
 
 
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