EXHIBIT 10.02
Execution Version
THIRD FORBEARANCE AGREEMENT

 
THIS THIRD FORBEARANCE AGREEMENT (this “Agreement”) is entered into as of March
31, 2009, by and among Pacific Ethanol Holding Co. LLC (“Holding”), Pacific
Ethanol Madera LLC (“Madera”), Pacific Ethanol Columbia, LLC (“Columbia”),
Pacific Ethanol Stockton, LLC (“Stockton”) and Pacific Ethanol Magic Valley, LLC
(“Magic Valley” and together with Holding, Madera, Columbia and Stockton, the
“Borrowers”), WestLB AG, New York Branch, as administrative agent for the Senior
Secured Parties (in such capacity, the “Administrative Agent”), WestLB AG New
York Branch, as collateral agent for the Senior Secured Parties (in such
capacity, the “Collateral Agent” and, collectively with the Administrative
Agent, the “Agent”) and Amarillo National Bank, as accounts bank for the Senior
Secured Parties (the “Accounts Bank”), as parties to the Credit Agreement
(defined below).  Capitalized terms used in this Agreement which are not
otherwise defined herein, shall have the meanings given such terms in the Credit
Agreement.
 
RECITALS:
 
WHEREAS, the Borrowers, Administrative Agent, Collateral Agent, Accounts Bank
and the lenders party thereto from time to time are parties to that certain
Credit Agreement dated as of February 27, 2007 (as amended by that certain
Successor Accounts Bank and Amendment Agreement dated as of August 27, 2007, as
further amended by that certain Waiver and Third Amendment to Credit Agreement
dated as of March 25, 2008, as further amended by that certain Fourth Amendment
to Credit Agreement dated as of April 24, 2008, as further amended by that
certain Fifth Amendment to Credit Agreement dated as of October 24, 2008 and as
further amended by that certain Sixth Amendment to Credit Agreement dated as of
December 30, 2008, the “Credit Agreement”);
 
WHEREAS, the Borrowers, Administrative Agent, Collateral Agent and the Senior
Secured Parties entered into that certain Limited Waiver and Forbearance
Agreement dated as of February 17, 2009 and that certain Second Limited Waiver
and Forbearance Agreement dated as of February 27, 2009;
 
WHEREAS, the Borrowers were unable to pay the Term Loan interest payment due and
payable on the scheduled payment date in accordance with Section 9.01(a) of the
Credit Agreement, which nonpayment constituted an Event of Default (the
“Interest Payment Event of Default”);
 
WHEREAS, the Borrowers have advised Agent that they will be unable to pay the
Term Loan principal and interest payment due and payable on the scheduled
payment date in accordance with Section 9.01(a) of the Credit Agreement, which
nonpayment will constitute an Event of Default  (the “Anticipated Principal
Payment Default”);
 
WHEREAS, the Defaults and Events of Default set forth on Schedule I attached
hereto have occurred and are continuing under the Credit Agreement
(collectively, the “Existing Events of Default”);
 
 
1

--------------------------------------------------------------------------------

 
WHEREAS, the Borrowers have advised Agent that they do not expect to be in
compliance with certain other provisions of the Credit Agreement which would
give rise during the Forbearance Period (as defined below) to the Events of
Default set forth on Schedule II attached hereto (collectively, the “Anticipated
Defaults”);
 
WHEREAS, as a result of the occurrence of the Existing Events of Default and
pursuant to the Credit Agreement and other Financing Documents, (i) the Senior
Secured Parties are under no further obligation to make Loans or other financial
accommodations to Borrowers under the Credit Agreement and (ii) the Agent and
the Senior Secured Parties are entitled, among other things, to enforce their
rights and remedies against the Borrowers and the Collateral, including, without
limitation, accrual of default interest, the right to accelerate and immediately
demand payment in full of the Obligations and foreclose on the Collateral;
 
WHEREAS, the Borrowers have requested that the Agent and the Senior Secured
Parties agree and, subject to the terms and conditions of this Agreement, the
Agent and the Senior Secured Parties have agreed, to forbear from demanding
immediate payment of certain amounts and exercising their right to foreclose on
any or all of the Collateral from the date hereof through the earliest to occur
of (i) April 30, 2009; (ii) the date of termination of the Forbearance Period
pursuant to Section 6 hereof; and (iii) the date on which all of the Obligations
have been paid in full and the Credit Agreement has been terminated (the
“Forbearance Period”);
 
WHEREAS, an Event of Default has occurred under Sections 5(a)(vi) and
5(a)(vii)(2) (together, the “Interest Rate Protection Agreement Events of
Default”) of the ISDA Master Agreement dated February 26, 2007 (the “Interest
Rate Protection Agreement”) between Holding and WestLB, New York Branch (in such
capacity, the “Interest Rate Protection Provider”);
 
WHEREAS, Holding has advised the Interest Rate Protection Provider that it will
be unable to pay the interest payment due and payable on the scheduled payment
date in accordance with Section 5(a)(i) of the Interest Rate Protection
Agreement, which nonpayment will constitute an Event of Default  (the
“Anticipated Swap Interest Payment Default”);
 
WHEREAS, Holding has requested that the Interest Rate Protection Provider agree
and, subject to the terms and conditions of this Agreement, the Interest Rate
Protection Provider has agreed, to refrain from terminating the Interest Rate
Protection Agreement from the date hereof through the Forbearance Period subject
to the terms and conditions set forth herein;
 
NOW, THEREFORE, in consideration of the premises set forth above, the terms and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers, the
Agent and Senior Secured Parties hereby agree as follows:
 
1.  Incorporation of Preliminary Statements.  The preliminary statements set
forth above are hereby incorporated into this Agreement as accurate and complete
statements of fact.  Without limiting the foregoing, each Borrower hereby
acknowledges and agrees that (a) the Interest Payment Event of Default and the
Existing Events of Default have occurred and are continuing under the terms of
the Credit Agreement and the Interest Rate Protection Agreement Events of
Default have occurred and are continuing under the terms of the Interest Rate
Protection Agreement, and none of the Borrowers has any disputes, defenses or
counterclaims of any kind with respect thereto; (b) the Senior Secured Parties
are under no obligation to make Loans or other financial accommodations to the
Borrowers under the Credit Agreement; (c) the Interest Rate Protection Provider
has the right to terminate the Interest Rate Protection Agreement on the date
hereof; (d) the Agent, on behalf of the Senior Secured Parties has, and shall
continue to have, valid, enforceable and perfected security interests in and
liens upon the Collateral heretofore granted by Borrowers to the Collateral
Agent and Senior Secured Parties pursuant to the Financing Agreements or
otherwise granted to or held by the Collateral Agent or the Senior Secured
Parties; (e) absent the effectiveness of this Agreement, the Agent and Senior
Secured Parties have the right to immediately enforce their security interest
in, and liens on, the Collateral; and (f) the outstanding Loans and all other
Obligations are payable pursuant to the Credit Agreement or Interest Rate
Protection Agreement, as applicable, without defense, dispute, offset,
withholding, recoupment, counterclaim or deduction of any kind.
 
 
2

--------------------------------------------------------------------------------

 
2.  Covenant re Interest Payment Event of Default and Anticipated Principal
Payment Default.
 
Provided that no Forbearance Default (as defined below) occurs, and subject in
all respects to the terms and conditions of this Agreement including
satisfaction of the conditions precedent to the effectiveness of this Agreement
set forth in Section 4 below, during the Forbearance Period each Senior Secured
Party agrees that it shall not (i) direct the Administrative Agent to declare
all or any portion of the outstanding principal amount of the Loans and other
Obligations to be due and payable or (ii) direct the Collateral Agent to
exercise any or all remedies provided for under the Credit Agreement or the
other Financing Documents solely on account of the Interest Payment Event of
Default and the Anticipated Principal Payment Default.  Nothing contained herein
shall limit the right of a Senior Secured Party to exercise remedies with
respect to the obligations under its Note(s).  Upon termination of the
Forbearance Period, the Senior Secured Parties shall have the right to enforce
any and all remedies with respect to the Anticipated Principal Payment Default.
 
3.  Forbearance.
 
(a)           Credit Agreement.
 
(i)  Each Borrower agrees and acknowledges that the Existing Events of Default
set forth on Schedule I have occurred and are continuing.
 
(ii) Each Borrower has advised Agent that such Borrower does not expect to be in
compliance with certain provisions of the Credit Agreement which would give rise
to the Anticipated Defaults set forth on Schedule II.
 
(iii) Each Borrower hereby agrees and acknowledges that (A) Schedule I
represents a complete and accurate list of all Existing Events of Default (other
than the Interest Payment Event of Default) which are in existence as of the
Effective Date (as hereinafter defined); and (B) Schedule II represents a
complete and accurate list of all provisions in the Credit Agreement which it
reasonably believes may give rise to an Anticipated Default (other than the
Anticipated Principal Payment Default).
 
 
3

--------------------------------------------------------------------------------

 
(iv) Provided that no Forbearance Default (as defined below) occurs, subject to
the terms and conditions of this Agreement and satisfaction of the conditions
precedent to the effectiveness of this Agreement set forth in Section 4 below,
during the Forbearance Period, the Agent and the Senior Secured Parties hereby
forbear from exercising, on account of the Existing Events of Default and the
Anticipated Defaults, those rights and remedies afforded to them under the
Credit Agreement, the other Financing Documents and applicable law.

(b)           Interest Rate Protection Agreement.

(i) Holding acknowledges that the Interest Rate Protection Agreement Events of
Default have occurred and are continuing.

(ii) Holding has advised the Interest Rate Protection Provider that it does not
expect to be in compliance with Section 5(a)(i) of the Interest Rate Protection
Agreement which would give rise to the Anticipated Swap Interest Payment
Default.

(iii) Holding hereby agrees and acknowledges that (A) the Interest Rate
Protection Agreement Events of Default completely and accurately represent all
of the Events of Default (as defined in the Interest Rate Protection Agreement)
or Termination Events (as defined in the Interest Rate Protection Agreement)
which are in existence under the Interest Rate Protection Agreement as of the
Effective Date; and (B) the Anticipated Swap Interest Payment Default completely
and accurately represents all of the provisions of the Interest Rate Protection
Agreement which it reasonably believes may give rise to an Event of Default
under the Interest Rate Protection Agreement during the Forbearance Period;

(iv) Provided that no Forbearance Default (as defined below) occurs, subject to
the terms and conditions of this Agreement and satisfaction of the conditions
precedent to the effectiveness of this Agreement set forth in Section 4 below,
during the Forbearance Period, the Interest Rate Protection Provider hereby
agrees to not exercise, on account of the Interest Rate Protection Agreement
Events of Default and the Anticipated Swap Interest Payment Default, those
rights and remedies afforded it under the Interest Rate Protection Agreement,
Credit Agreement, the other Financing Documents and applicable law; provided
however, notwithstanding anything to the contrary set forth in the Credit
Agreement, to the extent that the Interest Rate Protection Provider postpones or
reschedules any accrued and unpaid interest payment due and payable under the
Interest Rate Protection Agreement (whether during the term of this Agreement or
at any time hereafter), upon termination of the Interest Rate Protection
Agreement, such amounts shall be (A) excluded from the calculation of the Swap
Termination Value and (B) included in the portion of the Obligations payable
under Section 9.04(c) of the Credit Agreement.

4.  Conditions of Effectiveness of this Agreement.   This Agreement shall become
effective as of the date hereof (the “Effective Date”) when, and only when:
 
 
4

--------------------------------------------------------------------------------

 
(a)           The Agent shall have received counterparts of this Agreement duly
executed and delivered by the Borrowers and the Accounts Bank;
 
(b)           The Agent shall have received the Updated 13-Week Cash Flow
Forecast (as defined below) in form and substance acceptable to the Agent;
 
(c)           The Agent shall have received an agreement, in form and substance
satisfactory to the Agent, pursuant to which Wachovia, as agent, and the other
lenders party thereto have agreed to continue to forbear from exercising their
rights against Pacific Ethanol Inc. (“Pacific Ethanol”) and Kinergy Marketing,
LLC (“Kinergy”) pursuant to the terms of their financing arrangements with
Pacific Ethanol and Kinergy co-terminous with the Forbearance Period and such
forbearance shall be in full force and effect;
 
(d)           The Agent shall have received an agreement, in form and substance
satisfactory to the Agent, pursuant to which Lyles United, LLC agrees to forbear
from exercising its rights against Pacific Ethanol, Pacific Ethanol California,
Inc., and Pacific Ag Products, LLC, pursuant to the terms of that certain Loan
Restructuring Agreement dated as of November 7, 2008 and the other instruments
referred to therein, for a forbearance period co-terminous with the Forbearance
Period and such forbearance shall be in full force and effect;
 
(e)           The Agent shall have received evidence satisfactory to it that
Pacific Ethanol has received proceeds of not less than $2,000,000 from the
issuance of notes (the “Junior Notes”) which Notes shall be satisfactory in all
respects (including, without limitation, term and ranking) to the Agent.  The
Borrowers shall have concurrently provided the Agent and the Agent’s financial
and legal advisors with a Updated 13-Week Cash Flow Forecast (as defined below)
satisfactory in all respects to the Agent setting forth how Pacific Ethanol,
Kinergy and the Borrowers will use such proceeds.
 
(f)           All of the representations and warranties of the Borrowers
contained in this Agreement shall be true and correct on and as of the Effective
Date (unless stated to relate solely to an earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date); and
 
(g)           The Agent shall have received payment in full of all fees and
expenses due and payable in accordance with the terms of this Agreement and the
Credit Agreement (including reasonable and documented legal fees and expenses of
the Agent’s counsel and other advisors).
 
5.  Representations and Warranties.  To induce the Agent and the Senior Secured
Parties to enter into this Agreement, each Borrower represents and warrants to
the Agent and the Senior Secured Parties (which representations and warranties
shall be made on and as of the Effective Date):
 
(a)           Such Borrower has the requisite corporate power and authority and
the legal right to execute and deliver this Agreement, and to perform the
transactions contemplated hereby.  The execution, delivery and performance by
such Borrower of this Agreement, (i) are within the Borrower’s corporate power;
(ii) have been duly authorized by all necessary corporate or other action; (iii)
do not contravene or cause the Borrower or any other Loan Party to be in default
under (x) any provision of the Borrower’s or other Loan Party’s formation
documents or bylaws, (y) any contractual restriction contained in any indenture,
loan or credit agreement, lease, mortgage, security agreement, bond, note or
other agreement or instrument binding on or affecting the Borrower or other Loan
Party or its property, or (z) any law, rule, regulation, order, license
requirement, writ, judgment, award, injunction, or decree applicable to, binding
on or affecting the Borrower or other Loan Party or its property; (iv) will not
result in the creation or imposition of any Lien upon any of the property of the
Borrower or other Loan Party or any Subsidiary thereof other than those in favor
of the Agent or any Senior Secured Party, all pursuant to the Financing
Documents; and (e) do not require the consent or approval of any Governmental
Authority or any other Person, other than those which have been duly obtained,
made or complied with and which are in full force and effect.
 
 
5

--------------------------------------------------------------------------------

 
(b)           This Agreement has been duly executed and delivered by such
Borrower.  Each of this Agreement, the Credit Agreement (as modified herein),
the Interest Rate Protection Agreement (as modified herein) and the other
Financing Documents (as modified hereby) to which each Borrower is a party is
the legal, valid and binding obligation of such Borrower, enforceable against
such Borrower in accordance with its terms, subject, as to enforceability, to
(A) any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting the
enforceability of creditors’ rights generally and (B) general equitable
principles, whether applied in a proceeding at law or in equity, and is in full
force and effect.
 
(c)           Except as to those representations and warranties now made
inconsistent with the terms of this Agreement or which constitute the Interest
Payment Event of Default, an Existing Event of Default, the Anticipated
Principal Payment Default, an Anticipated Default, the Anticipated Swap Interest
Payment Default or the Interest Rate Protection Agreement Events of Default, the
representations and warranties of each Borrower and Loan Party contained in each
Financing and Project Document (other than any such representations or
warranties that, by their terms, are specifically made as of a date other than
the date hereof) are true and correct in all material respects on and as of the
date hereof as though made on and as of the date hereof.
 
(d)           No Default or Event of Default under the Credit Agreement or
Interest Rate Protection Agreement arising other than as a result of the
Interest Payment Event of Default, Existing Events of Default, the Anticipated
Defaults, the Anticipated Principal Payment Default, the Anticipated Swap
Interest Payment Default or the Interest Rate Protection Agreement Events of
Default shall have occurred and be continuing or would result after giving
effect to any of the transactions contemplated on the date hereof.
 
(e)           No Forbearance Default (as defined below) has occurred.
 
6.  Forbearance Defaults:  The following events shall constitute “Forbearance
Defaults”):
 
(a)           any failure to pay principal payments (other than the Anticipated
Principal Payment Default), interest payments (other than the Interest Payment
Event of Default and the Anticipated Swap Interest Payment Default) or any other
payments in accordance with the terms of the Credit Agreement or the Interest
Rate Protection Agreement; or
 
 
6

--------------------------------------------------------------------------------

 
(b)           any Borrower or Loan Party shall fail to observe or perform any
other term, covenant, or agreement binding on it contained in this Agreement, or
any other agreement, instrument, or document executed in connection with this
Agreement; or

(c)           the occurrence of an Event of Default under the Credit Agreement,
the Interest Rate Protection Agreement or any of the other Financing Documents
or any Project Document, other than an Existing Event of Default, an Anticipated
Default, the Interest Payment Event of Default, the Anticipated Principal
Payment Default, the Anticipated Swap Interest Payment Default or either of the
Interest Rate Protection Agreement Events of Default;

(d)           any instrument, document, report, schedule, agreement,
representation or warranty, oral or written, made or delivered to the Agent or
any Senior Secured Parties by any  Borrower or Loan Party shall be false or
misleading in any material respect when made, or deemed made, or delivered; or

(e)           the proceeds of the Junior Notes shall have been fully utilized by
Pacific Ethanol, Kinergy and the Borrowers on or before April 30, 2009, or for
any reason Pacific Ethanol fails to make available, or is unable to make
available, to any Borrower, funds adequate to support such Borrower’s current
level of operations (taking into account any other sources of funding available
to such Borrower).

Upon the occurrence of any Forbearance Default, the Agent, upon the direction of
the Required Senior Secured Parties, may by notice to Borrowers immediately
terminate the Forbearance Period and/or declare all of the Obligations
immediately due and payable; provided, however, that upon the occurrence of any
Event of Default described in Section 9.01(i) of the Credit Agreement, the
Forbearance Period shall automatically terminate and all Obligations shall
automatically become immediately due and payable, without notice or demand of
any kind.  Upon the termination or expiration of the Forbearance Period, if at
such time the outstanding amount of the Obligations have not been paid in full,
the Agent and the Senior Secured Parties shall be entitled to exercise all of
their rights and remedies under the Credit Agreement, the Interest Rate
Protection Agreement, the other Financing Documents and applicable law,
including, without limitation, the right to declare all of the Obligations to be
immediately due and payable and to enforce their liens on, and security
interests in, the Collateral.  The occurrence of any Forbearance Default shall
constitute an Event of Default under the Credit Agreement, the Interest Rate
Protection Agreement and the other Financing Documents.

7.  Forbearance Period Covenants.  In order to induce the Senior Secured Parties
to enter into this Agreement and forbear or otherwise refrain during the
Forbearance Period from exercising the Agent and Senior Secured Parties’ rights
and remedies with respect to the Interest Payment Event of Default and the
Existing Events of Default, each Borrower covenants that on or before the date
hereof, the Borrowers shall deliver to the Agent an updated thirteen (13) week
cash flow forecast of Pacific Ethanol and its Subsidiaries attached hereto as
Exhibit 1 (the “Updated 13-Week Cash Flow Forecast”), in form and substance
satisfactory to the Agent, which has been thoroughly reviewed by the Borrowers
and its management and sets forth for the periods covered thereby: (i) projected
weekly operating cash receipts for Pacific Ethanol and each of its Subsidiaries
(on a consolidated and on an entity by entity basis) for each week commencing
with the week ending March 30, 2009, (ii) projected weekly operating cash
disbursements for Pacific Ethanol and each of its Subsidiaries (on a
consolidated and on an entity by entity basis) for each week commencing with the
week ending March 30, 2009, and (iii) projected aggregate principal amount of
outstanding and available Loans for the Borrowers each week commencing with the
week ending as of March 30, 2009 (collectively, the “Projected
Information”).  In addition to the Updated 13-Week Cash Flow Forecast, by no
later than 5:00 p.m. (Pacific time) on the second Business Day of each week
commencing on March 31, 2009, Borrowers shall deliver to the Agent, in form and
substance satisfactory to the Agent, an updated thirteen (13) week forecast for
Pacific Ethanol and each of its Subsidiaries (on a consolidated and on an entity
by entity basis) prepared on a cumulative, weekly roll forward basis, together
with a report that sets forth for the immediately preceding week a comparison of
the actual cash receipts, cash disbursements, loan balance and loan availability
to the Projected Information for such weekly periods set forth in the forecast
on a cumulative, weekly roll-forward basis, duly completed and executed by the
Chief Executive Officer, Chief Financial Officer or other financial or senior
officer of the Borrowers.
 
 
7

--------------------------------------------------------------------------------

 
8.  Status of Credit Agreement and Other Financing Documents; No Novation;
Reservation of Rights and Remedies

(a)           Upon the Effective Date, each reference in the Credit Agreement to
“this Agreement”, “hereunder”, “hereof” or words of like import, and each
reference in the Financing Documents to the Credit Agreement, shall mean and be
a reference to the Credit Agreement as modified and supplemented hereby.

(b)           This Agreement shall be limited solely to the matters expressly
set forth herein and shall not (i) constitute an amendment or waiver of, or a
forbearance with respect to, any term or condition of the Credit Agreement, the
Interest Rate Protection Agreement or any other Financing Document, except as
expressly provided herein, (ii) prejudice any right or rights which the Agent,
any Senior Secured Party or any Lender Parties (as defined in Section 10 below)
may now have or may have in the future under or in connection with the Credit
Agreement or any other Financing Document, (iii) require the Agent or any Senior
Secured Party to agree to a similar transaction or forbearance on a future
occasion.

(c)           Except to the extent specifically provided herein, the respective
provisions of the Credit Agreement and the other Financing Documents shall not
be amended, modified, waived, impaired or otherwise affected hereby, including,
without limitation, the accrual of interest at the Default Rate on overdue
amounts in accordance with Section 3.06 of the Credit Agreement, and such
documents and the Obligations under each of them are hereby confirmed as being
in full force and effect.

(d)           This Agreement is not a novation nor is it to be construed as a
release, waiver or modification of any of the terms, conditions,
representations, warranties, covenants, rights or remedies set forth in the
Credit Agreement, or any of the other Financing Documents, except as
specifically set forth herein.
 
 
8

--------------------------------------------------------------------------------

 
(e)           Except as expressly provided herein, the Agent and the Senior
Secured Parties expressly reserve all rights, claims and remedies that any of
them have or may have against the Borrowers.

9.  Acknowledgment of Validity and Enforceability of the Credit Agreement and
other Financing Documents.  Each Borrower expressly acknowledges and agrees that
the Credit Agreement, the Interest Rate Protection Agreement and the other
Financing Documents to which it is a party are valid and enforceable by the
Senior Secured Parties against such Borrower and, except as expressly modified
pursuant to this Agreement, expressly reaffirms each of its Obligations under
each Financing Document to which it is a party.  Each Borrower further expressly
acknowledges and agrees that the Agent, for its own benefit and for the benefit
of the Senior Secured Parties, has a valid, duly perfected, first priority and
fully enforceable security interest in and lien against each item of
Collateral.  Each Borrower agrees that it shall not dispute the validity or
enforceability of the Credit Agreement, the Interest Rate Protection Agreement
or any of the other Financing Documents or any of its Obligations thereunder, or
the validity, priority, enforceability or extent of the Agent’s security
interest in or lien against any item of Collateral, either during or following
the expiration of the Forbearance Period.

10. Release; Covenant Not to Sue.

(a)           Each Loan Party acknowledges that the Agent and the Senior Secured
Parties would not enter into this Agreement without the Borrowers’ assurance
that each Borrower has no claim against the Agent or any Senior Secured Parties,
their respective parent corporations, Subsidiaries, Affiliates, officers,
directors, shareholders, employees, attorneys, agents, professionals and
servants, or any of their respective predecessors, successors, heirs and assigns
(collectively, the “Lender Parties” and each, a “Lender Party”) arising out of
the Financing Documents or the transactions contemplated thereby.  Each Loan
Party, for itself and on behalf of its officers and directors, and its
respective predecessors, successors and assigns (collectively, the “Releasors”)
releases each Lender Party from any known or unknown claims which any Borrower
now has against any Lender Party of any nature, including any claims that any
Releasor, or any Releasor’s successors, counsel and advisors may in the future
discover they would have had now if they had known facts not now known to them,
whether founded in contract, in tort or pursuant to any other theory of
liability, arising out of or related to the Financing Documents or the
transactions contemplated thereby (individually, a “Claim” and collectively,
“Claims”).

(b)           Except as expressly provided herein, the Releasors each expressly
waive any statutory or other limitation on the enforceability of a general
release of unknown claims which, if known, would have materially affected this
Agreement.  EACH RELEASOR HEREBY EXPLICITLY WAIVES ALL RIGHTS UNDER AND ANY
BENEFITS OF ANY COMMON LAW OR STATUTORY RULE OR PRINCIPLE WITH RESPECT TO THE
RELEASE OF SUCH CLAIMS, INCLUDING, WITHOUT LIMITATION, SECTION 1542 OF THE
CALIFORNIA CIVIL CODE, WHICH PROVIDES AS FOLLOWS:
 
●           A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.
 
 
9

--------------------------------------------------------------------------------

 
EACH RELEASOR AGREES THAT NO SUCH COMMON LAW OR STATUTORY RULE OR PRINCIPLE,
INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE OR SIMILAR LAW IN ANOTHER
JURISDICTION, SHALL AFFECT THE VALIDITY OR SCOPE OR ANY OTHER ASPECT OF THIS
AGREEMENT.
 
(c) The provisions, waivers and releases set forth in this Section 10 are
binding upon each Releasor.  The provisions, waivers and releases of this
Section 10 shall inure to the benefit of each Lender Party.

(d) The provisions of this Section 10 shall survive payment in full of the
Obligations, full performance of all of the terms of this Agreement, the Credit
Agreement, the Interest Rate Protection Agreement and the other financing
Documents and/or any action by the Agent or any Lender Party to exercise any
remedy available under the Financing Documents or applicable law.

(e) Each Releasor represents and warrants that each such Releasor is the sole
and lawful owner of all right, title and interest in and to all of the claims
released hereby and each such Releasor has not heretofore voluntarily, by
operation of law or otherwise, assigned or transferred or purported to assign or
transfer to any person any such claim or any portion thereof.  Each Releasor
shall jointly and severally indemnify and hold harmless each Lender Party from
and against any claim, demand, damage, debt, liability (including payment of
reasonable attorneys’ fees and costs actually incurred whether or not litigation
is commenced) based on or arising out of any such assignment or transfer.

(f) Each Releasor, on behalf of themselves and their successors, assigns, and
other legal representatives, hereby absolutely, unconditionally covenant and
agree with each Lender Party that they will not sue (at law, in equity, in any
regulatory proceeding or otherwise) any Lender Party on the basis of any Claim
released, remised and discharged by the Lender Parties pursuant to Section 10(a)
above.  If any Releasor violates the foregoing covenant, such Releasor agrees to
pay, in addition to such other damages as any Lender Party may sustain as a
result of such violation, all attorneys’ fees and costs incurred by any Lender
Party as a result violation.

11.  No Waiver.  Each Borrower hereby acknowledges and agrees that the Agent’s
or any Senior Secured Party’s failure, at any time or times hereafter, to
require strict performance by the Borrowers of any provision or term of this
Agreement, the Credit Agreement, the Interest Rate Protection Agreement or any
other Financing Document shall not waive, affect or diminish any right of the
Agent or any Senior Secured Party thereafter to demand strict compliance and
performance therewith.  Any suspension or waiver by the Agent or the Senior
Secured Parties of a Forbearance Default or of an Event of Default shall not,
except as may be expressly set forth herein, suspend, waive or affect any other
Forbearance Default or any other Event of Default, whether the same is prior or
subsequent thereto and whether of the same or of a different kind or character.
 
 
10

--------------------------------------------------------------------------------

 
12.  Sole Benefit of Parties.  This Agreement is solely for the benefit of the
parties hereto and their respective successors and assigns, and no other Person
shall have any right, benefit or interest under or because of the existence of
this Agreement.
 
13.  Limitation on Relationship Between Parties.  The relationship of Agent and
the Senior Secured Parties, on the one hand, and the Borrowers, on the other
hand, has been and shall continue to be, at all times, that of creditor and
debtor.  Nothing contained in this Agreement, any instrument, document or
agreement delivered in connection herewith or in the Credit Agreement, the
Interest Rate Protection Agreement or any of the other Financing Documents shall
be deemed or construed to create a fiduciary relationship between the parties.

14.  No Assignment.  This Agreement shall not be assignable by any Borrower
without the written consent of the Agent.  Each Senior Secured Party may assign
to one or more Persons all or any part of, or any participation interest in,
such Senior Secured Party’s rights and benefits hereunder in accordance with
Section 11.3 of the Credit Agreement provided that such Person is bound by the
terms and limitations of this Agreement.

15.  Miscellaneous.  This Agreement is a Financing Document.  The section and
subsection titles contained in this Agreement are included for the sake of
convenience only, and shall not affect the meaning or interpretation of this
Agreement, the Credit Agreement, the Interest Rate Protection Agreement or any
other Financing Documents or any provisions hereof or thereof.

16. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (OTHER THAN SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW), APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

17. Consultation with Counsel.  Each Borrower represents to the Agent and the
Senior Secured Parties that it has discussed this Agreement, including the
provisions of Sections 10, 13 and 16 hereof, with its attorneys.

18. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective as delivery of
a manually executed counterpart of this Agreement.

19.  Headings.   Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.  
 
20.  No Course of Dealing.  The Senior Secured Parties have entered into this
Agreement on the express understanding with the Borrowers that in entering into
this Agreement the Senior Secured Parties are not establishing any course of
dealing with the Borrowers.  The Agent’s and the Senior Secured Parties’ rights
to require strict performance with all the terms and conditions of the Credit
Agreement and the Interest Rate Protection Agreement, each as modified by this
Agreement, and the other Financing Documents shall not in any way be impaired by
the execution of this Agreement.  Neither the Agent nor any Senior Secured Party
shall be obligated in any manner to execute any amendments or further waivers,
and if any such amendments or further waivers are requested in the future,
assuming the terms and conditions thereof are acceptable to them, the Agent and
the Senior Secured Parties may require the payment of fees in connection
therewith.
 
 
11

--------------------------------------------------------------------------------

 
21.  Expenses.  The Borrowers hereby acknowledge and agree that all fees, costs
and expenses of Agent and Senior Secured Parties (including the reasonable and
documented fees, costs and expenses of counsel or other advisors, if any)
incurred in connection with the transactions contemplated by this Agreement
shall be payable by the Borrowers in accordance with the Credit Agreement.
 
22.  Further Assurances.  At Agent’s request, Borrowers shall execute and
deliver such additional documents and take such additional actions as the Agent
requests to effectuate the provisions and purposes of this Agreement and to
protect and/or maintain perfection of the Senior Secured Parties’ security
interests in and liens upon the Collateral.
 

 
*           *           *
 

[signature page follows]
 
 
12

--------------------------------------------------------------------------------

 
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first above written.
 

 

 
PACIFIC ETHANOL HOLDING CO. LLC,
as Borrower

By: /s/ BRYON
MCGREGOR                                                                
Name: Bryon McGregor
Title: VP Finance

PACIFIC ETHANOL MADERA LLC,
as Borrower

By: /s/ BRYON
MCGREGOR                                                                
Name: Bryon McGregor
Title: VP Finance

PACIFIC ETHANOL COLUMBIA, LLC,
as Borrower

By: /s/ BRYON
MCGREGOR                                                                
Name: Bryon McGregor
Title: VP Finance

PACIFIC ETHANOL STOCKTON, LLC,
as Borrower

By: /s/ BRYON
MCGREGOR                                                                
Name: Bryon McGregor
Title: VP Finance

PACIFIC ETHANOL MAGIC VALLEY LLC,
as Borrower

By: /s/ BRYON
MCGREGOR                                                                
Name: Bryon McGregor
Title: VP Finance
WESTLB AG, NEW YORK BRANCH, as Agent

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 

 
By: /s/ RONALD
SPITZER                                                                
Name: Ronald Spitzer
Title:  Duly Authorized Signatory

By: /s/ DOMINICK
D’ASCOLI                                                                           
Name: Domonick D’Ascoli
Title:  Duly Authorized Signatory

WESTLB AG, NEW YORK BRANCH,
as Collateral Agent

By: /s/ RONALD
SPITZER                                                                
Name: Ronald Spitzer
Title:  Duly Authorized Signatory

By: /s/ DOMINICK
D’ASCOLI                                                                           
Name: Domonick D’Ascoli
Title:  Duly Authorized Signatory

WESTLB AG, NEW YORK BRANCH,
as Senior Secured Party

By: /s/ RONALD
SPITZER                                                                
Name: Ronald Spitzer
Title:  Duly Authorized Signatory

By: /s/ DOMINICK
D’ASCOLI                                                                           
Name: Domonick D’Ascoli
Title:  Duly Authorized Signatory

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 

 

WESTLB AG, NEW YORK BRANCH,
as Interest Rate Protection Provider

By: /s/ RONALD
SPITZER                                                                
Name: Ronald Spitzer
Title:  Duly Authorized Signatory

By: /s/ DOMINICK
D’ASCOLI                                                                           
Name: Domonick D’Ascoli
Title:  Duly Authorized Signatory

 
 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 
 

 
AMARILLO NATIONAL BANK,
as Accounts Bank

By: /s/ CRAIG L.
SANDERS                                                                           
Name: Craig L. Sanders
Title:  Executive Vice President

AMARILLO NATIONAL BANK,
as Senior Secured Party

By: /s/ CRAIG L.
SANDERS                                                                           
Name: Craig L. Sanders
Title:  Executive Vice President

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 
 

 
 
BANCO DE SABADELL,
as Senior Secured Party

By: /s/ A. Von Dincklage
Name: A. Von Dincklage
Title:  S.V.P.

 
 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
CIFC FUNDING 2007-III LTD.,
as Senior Secured Party

By: ______________________________________
Name:
Title:
 
CIFC FUNDING 2007-IV LTD.,
as Senior Secured Party

By: ______________________________________
Name:
Title:

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
CIT CAPITAL SECURITIES LLC,
as Lead Arranger and Co-Syndication Agent Senior Secured Party

By: ______________________________________
Name:
Title:
 
CIT CAPITAL USA INC.,
as Senior Secured Party

By: ______________________________________
Name:
Title:

 
 

--------------------------------------------------------------------------------

 

 
 
CITIGROUP FINANCIAL PRODUCTS INC.,
as Senior Secured Party

By: ______________________________________
Name:
Title:

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
 
CREDIT SUISSE CANDLEWOOD SPECIAL
SITUATIONS MASTER FUND, LTD.
By: Credit Suisse Alternative Capital, Inc. as
investment manager

 
By: /s/ DAVID KOENIG
Name: David Koenig
Title:  Authorized Signatory

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
LISPENARD STREET CREDIT (MASTER), LTD.
By: DiMaio Ahmad Capital LLC, as Investment Manager

By: /s/ KULJINDER CHASE
Name: Kuljinder Chase
Title:  Managing Director
 
 
POND VIEW CREDIT (MASTER), L.P.
By: DiMaio Ahmad Capital LLC, as Investment Manager

By: /s/ KULJINDER CHASE
Name: Kuljinder Chase
Title:  Managing Director
 

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
UNITED FCS, PCA (F/K/A FARM CREDIT
SERVICES OF MINNESOTA VALLEY, PCA),
D/B/A FCS COMMERCIAL FINANCE GROUP,
as Senior Secured Party

By: /s/ DANIEL J. BEST
Name: Daniel J. Best
Title:  Asst. Vice President
 

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
 
HAF FUNDING 2008-1 LIMITED,
as Senior Secured Party

By: ______________________________________
Name:
Title:

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
GREENSTONE FARM CREDIT SERVICES,
ACA/FLCA,
as Senior Secured Party

By: /s/ ALFRED S. COMPTON, JR.
Name: Alfred J. Compton, Jr.
Title:  Vice President / Managing Director

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
METROPOLITAN LIFE INSURANCE COMPANY,
as Senior Secured Party

By: /s/ JOHN A. TANYERI
Name: John A. Tanyeri
Title:  Director

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
NORDKAP BANK AG,
as Senior Secured Party

By: /s/ JEFFREY P. RIOPELLE
Name: Jeffrey P. Riopelle
Title:  SVP
 
By: /s/ BATCHIMEG GADOLA
Name: Batchimeg Gadola
Title:  AVP

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
NORDDEUTSCHE LANDESBANK
GIROZENTRALE NEW YORK BRANCH,
as Senior Secured Party

By: /s/ JOSEF HAAS
Name: Josef Haas
Title:  Senior Director
 

By: /s/ STEFANIE SCHOLZ
Name: Stefanie Scholz
Title:  Managing Director

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
NORTHWEST FARM CREDIT SERVICES, FLCA,
as Senior Secured Party

By: /s/ CASEY KINZER
Name: Casey Kinzer
Title:  Account Manager

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
“RABOBANK NEDERLAND”, NEW YORK BRANCH,
as Senior Secured Party

By: /s/ JEFF BLISS
Name: Jeff Bliss
Title:  Executive Director
 

By: /s/ ANDREW SHERMAN
Name: Andrew Sherman
Title:  Executive Director

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
BANCO SANTANDER S.A.,
NEW YORK BRANCH,
as Senior Secured Party

By: ______________________________________
Name:
Title:
 
By: ______________________________________
Name:
Title:

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
SHOREBANK PACIFIC,
as Senior Secured Party

By: /s/ KENDALL LEACH
Name: Kendall Leach
Title:  SVP/CCO

 
 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 

 
 
CIFC FUNDING 2007-48, LTD.,
as Senior Secured Party

By: _____________________________________
Name:
Title:
 
CIFC FUNDING 2007-50, LTD.,
as Senior Secured Party

By: _____________________________________
Name:
Title:

 

 
Signature Page
Execution Version

--------------------------------------------------------------------------------

 
SCHEDULE I

 EXISTING EVENTS OF DEFAULT

(a)     Breach by Borrowers of Section 9.01(c), which requires Borrowers to
strictly comply with the performance and observance of any of its obligations
under Section 7.01(g)(vi).  Several construction expenses relating to the
Stockton Plant (estimated at $150,000) were unknowingly paid from the Operating
Account due to changes in Borrowers’ staff and inadequate plant coding of
invoices.  Also, approximately $175,000 of construction costs relating to the
Stockton Plant were initially paid out of the Stockton Construction Acct, and
will be reimbursed with equity from Pacific Ethanol.

(b)     Breach by Borrowers of Section 9.01(c), which requires Borrowers to
strictly comply with the performance and observance of any of its obligations
under Section 7.02(p).  Section 7.02(p) prohibits a suspension or abandonment
for more than 60 days without the prior written approval of the Required Senior
Secured Parties and the Madera, Stockton and Burley Plants have not produced
ethanol for a period greater than 60 days as of the date hereof.

(c)     Breach by Borrowers of Section 9.01(c), which requires Borrowers to
strictly comply with the performance and observance of any of its obligations
under Section 7.02(s).  Borrowers have failed to comply with the Restricted
Payments provisions set forth in Section 7.02(s) when (i) repaying amounts
advanced from Pacific Ethanol to support plant operations; (ii) transferring
funds by and among, the Borrowers, Pacific Ethanol and its Subsidiaries, Pacific
Ag. Products and Kinergy from time to time including, but not limited to,
transferring funds to Pacific Ethanol in connection with the payment of
dividends to holders of Pacific Ethanol’s Series B Preferred Shares.

(d)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of their obligations under Section
3.10(c) and such failure remained unremedied for a period of thirty (30) days
after any Borrowers obtained or should have obtained, knowledge thereof.  The
Borrowing Base Certificate for December 31, 2008 is expected to demonstrate that
the then-outstanding principal amount of the Working Capital Loans exceeds the
then-effective Aggregate Working Capital Commitment or the then-applicable
Working Capital Loan Availability.  The Borrowers will not be able to repay such
excess amount as required by Section 3.10(c).

(e)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.01(s) and such failure remained unremedied for a period of thirty (30) days
after any Borrowers obtained or should have obtained, knowledge
thereof.  Borrowers failed to prepare quarterly calculations required by Section
7.01(s).

(f)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.01(y) and such failure remained unremedied for a period of thirty (30) days
after any Borrowers obtained or should have obtained, knowledge thereof.  Final
Completion of the Stockton Plant was not achieved by January 25, 2009, as
required by Section 7.01(y).
 
 
Schedule I

--------------------------------------------------------------------------------

 
(g)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.03(n) and such failure remains unremedied for a period of thirty (30) days
after any Borrowers obtains or should have obtained, knowledge
thereof.  Borrowers did not deliver the Borrowing Base Certificate for the
period month ending December 31, 2008 in accordance with Section 7.03(n) by
February 15, 2009.

(h)     Breach by Borrowers of Section 9.01(g), which prohibits any judgment to
be rendered against any or all of the Borrowers in an amount in excess of
$2,000,000 in the aggregate and against Kinergy in an amount in excess of
$2,500,000 in the aggregate.  Western Ethanol Company, LLC has obtained a
pre-judgment writ of attachment in the amount of $3,700,000 against Kinergy.

(i)     Breach by Borrowers of Section 9.01(f), which may impose a cross-default
to the Kinergy Marketing LLC financing arrangement with Wachovia.

(j)     Breach by Borrowers of Section 9.01(f), which may impose a cross-default
to the Interest Rate Protection Agreement with WestLB as a result of the
Interest Rate Protection Agreement Events of Default.
 
(k)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.03(d) and such failure remains unremedied for a period of thirty (30) days
after any Borrowers obtains or should have obtained, knowledge thereof.  The
Borrowers have not delivered a statement of an Authorized Officer setting forth
the details of the Events of Default listed on this Schedule I within five (5)
days after the occurrence of such Events of Default, as required by Section
7.03(d).
 
 
Schedule I

--------------------------------------------------------------------------------

SCHEDULE II

ANTICIPATED DEFAULTS

(a)     Breach by Borrowers of Section 9.01(f), which imposes a cross-default to
the Pacific Ethanol Imperial LLC financing arrangement with Lyle.  Pacific
Ethanol expects to be in default of certain payment obligations by the first
week of March.

(b)     Breach by Borrowers of Section 9.01(o), which prohibits an Event of
Abandonment.  An Event of Abandonment will occur if any of the Plants are placed
into hot idle or cold shut down for more than 90 days.

(c)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.03(p) and such failure remains unremedied for a period of thirty (30) days
after any Borrowers obtains or should have obtained, knowledge
thereof.  Borrowers did not deliver the Operating Statement due on February 16,
2009.

(d)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.03(n) and such failure remains unremedied for a period of thirty (30) days
after any Borrowers obtains or should have obtained, knowledge
thereof.  Borrowers have informed the Agent that they will not deliver the
Borrowing Base Certificate for the month ending January 31, 2009 or February 28,
2009 by March 15, 2009 or April 15, 2009, respectively, in accordance with
Section 7.03(n).

(e)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.03(b) and such failure remains unremedied for a period of thirty (30) days
after any Borrowers obtains or should have obtained, knowledge
thereof.  Borrowers have informed the Agent that they will not be able to
deliver the annual audit report for Pacific Ethanol and Holding within ninety
(90) days after the end of the Fiscal Year accompanied by an unqualified opinion
of the auditors stating that such financial statements shall not be subject to
any “going concern” or like qualification or exception as to the scope of such
audit.

(f)     Breach by Borrowers of Section 9.01(d), which requires Borrowers to
comply with the performance and observance of its obligations under Section
7.03(d) and such failure remains unremedied for a period of thirty (30) days
after any Borrowers obtains or should have obtained, knowledge
thereof.  Borrowers do not expect to deliver a statement of an Authorized
Officer setting forth the details of the Anticipated Defaults listed on this
Schedule II within five (5) days after the occurrence of such Anticipated
Defaults, as required by Section 7.03(d).
 
 
Schedule II

--------------------------------------------------------------------------------

 
EXHIBIT 1

UPDATED 13-WEEK CASH FLOW FORECAST

[See Attached]
 
 
 

 

 Exhibit 1

--------------------------------------------------------------------------------