pacificethanol_8k-ex1002.htm


    Exhibit
10.2

     

    SECOND
LIMITED WAIVER AND FORBEARANCE AGREEMENT

     

     

    THIS
SECOND LIMITED WAIVER AND FORBEARANCE AGREEMENT (this “Agreement”) is entered
into as of February 27, 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;

     

    WHEREAS,
the Borrowers have advised Agent that they will be 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 will constitute
an Event of Default  (the “Anticipated Interest 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”);

     

    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 Senior Secured Parties permit the
Borrowers to (i) withdraw the funds otherwise required to be maintained in the
Debt Service Reserve Account and (ii) use such funds, pursuant to and in
accordance with the Updated 13-Week Cash Flow Forecast (as hereinafter defined)
attached hereto as Exhibit 1 (the “Limited
Waivers”);

     

    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) March 31,
2009; (ii) the date of termination of the Forbearance Period pursuant to Section 7 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”) and to
provide the Limited Waivers subject to the terms and conditions set forth
herein;

     

    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 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 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.

     

    
      
         

      

      
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    2.  Covenant
re Anticipated Interest 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 5 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 Anticipated Interest 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 Interest
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 (i) Schedule I represents
a complete and accurate list of all Existing Events of Default which are in
existence as of the Effective Date (as hereinafter defined); and (ii) 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 Interest Payment Default).

    


    (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 5 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.

     

    
      
         

      

      
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    (b)           Interest Rate Protection
Agreement.

    


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

    


    (ii)           Holding
hereby agrees and acknowledges that 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.

    


    (iii)           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 5 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, 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.  Limited
Waiver.   Subject to the terms and condition of this
Agreement and satisfaction of the conditions precedent set forth in Section 5, the Agent
and Senior Secured Parties hereby grant the Limited Waivers.  Solely
for the purposes set forth herein, the Agent shall not provide written notice to
Accounts Bank notifying it of insufficient funds in the Debt Service Reserve
Account or exercise any other available remedies on account of the withdrawal of
such funds. Withdrawal by Borrowers of the funds in the Debt Service Reserve
Account shall be deemed to be a “Term Loan Funding” for purposes of the Credit
Agreement.  The Agent and Senior Secured Parties agree that the
Limited Waivers set forth in this Section shall be limited precisely as written
and, except as set forth in this Agreement, shall not be deemed to be a consent
to any amendment, waiver or modification of any other term or condition of the
Credit Agreement or any other Financing Document.

     

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

     

    (a)           The
Agent shall have received counterparts of this Agreement duly executed and
delivered by the Borrowers and the Accounts Bank;

     

    
      
         

      

      
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    (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. (“PEI”) and Kinergy Marketing,
LLC (“Kinergy”) pursuant
to the terms of their financing arrangements with PEI 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 PEI, 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)           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

     

    (f)           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).

     

    6.  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.

     

    
      
         

      

      
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    (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 an Existing Event of Default, an
Anticipated Default or an Interest Rate Protection Agreement Event 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 Existing Events of
Default, the Anticipated Defaults, the Anticipated 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.

     

    7.  Forbearance
Defaults:  The following events shall constitute “Forbearance
Defaults”):

     

    (a)           any
failure to pay principal payments, interest payments (other than the Anticipated
Interest Payment Default) or any other payments in accordance with the terms
of the Credit Agreement or the
Interest Rate Protection Agreement; or

    


    (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
Anticipated Interest Payment Default or either of the Interest Rate Protection
Agreement Events of Default; or

    


    (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.

     

    
      
         

      

      
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    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.

    


    8.  Forbearance
Period Covenants.  In order to induce the Senior Secured
Parties to enter into this Agreement and forbear during the Forbearance Period
from exercising the Agent and Senior Secured Parties’ rights and remedies with
respect to 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 6, 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 6, 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 6, 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 9, 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.

    


    9.  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.

     

    
      
         

      

      
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    (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 11 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.

    


    (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.

    


    10.  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.

    


    11.  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”).

     

    
      
         

      

      
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    (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.

     

    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 11 are
binding upon each Releasor.  The provisions, waivers and releases of
this Section 11
shall inure to the benefit of each Lender Party.

    


    (d)           The
provisions of this Section 11 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.

     

    
      
         

      

      
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    (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 11(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.

    


    12.  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.

     

    13.  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.

     

    14.  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.

    


    15.  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.

    


    16.  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.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    17. 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.

    


    18. 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
11, 14
and 17 hereof,
with its attorneys.

    


    19. 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.

    


    20.  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.  

     

    21.  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.

     

    22.  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.

     

    23.  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.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    


     

    *           *           *

     

    


    


    [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/ NEIL M.
      KOEHLER 
	 	
              Name:
      Neil M. Koehler

              Title:
      President and CEO

               

            
	 	
              PACIFIC
      ETHANOL MADERA LLC,

              as
      Borrower

               

               

            
	 	By:/s/ NEIL M.
      KOEHLER
	 	
              Name:
      Neil M. Koehler

              Title:
      President and CEO

               

            
	 	
              PACIFIC
      ETHANOL COLUMBIA, LLC,

              as
      Borrower

               

               

            
	 	By:/s/ NEIL M.
      KOEHLER
	 	
              Name:
      Neil M. Koehler

              Title:
      President and CEO

               

            
	 	
              PACIFIC
      ETHANOL STOCKTON, LLC,

              as
      Borrower

               

               

            
	 	By:/s/ NEIL M.
      KOEHLER 
	 	
              Name:
      Neil M. Koehler

              Title:
      President and CEO

               

            
	 	
              PACIFIC
      ETHANOL MAGIC VALLEY LLC,

              as
      Borrower

               

               

            
	 	By:/s/ NEIL M.
      KOEHLER
	 	
              Name:
      Neil M. Koehler

              Title:
      President and CEO

            


    

    
      

      
        
           


        

        
          13

          
            

          

        

        
           


        

      

       

      
        	 	
                WESTLB
      AG, NEW YORK BRANCH, 

                as
      Agent

                 

                 

              
	 	By: /s/ RONALD
      SPITZER
	 	
                Name:
      Ronald Spitzer, Executive Director

                Title:  Duly
      Authorized Signatory

              
	 	 
	 	By: /s/ DOMINICK
      D’ASCOLI 
	 	
                Name:
      Dominick D’Ascoli, Director

                Title:  Duly
      Authorized Signatory

                 

              
	 	
                WESTLB
      AG, NEW YORK BRANCH,

                as
      Collateral Agent

                 

                 

              
	 	By: /s/ RONALD
      SPITZER 
	 	
                Name:
      Ronald Spitzer, Executive Director

                Title:  Duly
      Authorized Signatory

              
	 	 
	 	By: /s/ DOMINICK
      D’ASCOLI 
	 	
                Name:
      Dominick D’Ascoli, Director

                Title:  Duly
      Authorized Signatory

                 

              
	 	
                WESTLB
      AG, NEW YORK BRANCH,

                as
      Senior Secured Party

                 

                 

              
	 	By: /s/ RONALD
      SPITZER
	 	
                Name:
      Ronald Spitzer, Executive Director

                Title:  Duly
      Authorized Signatory

              
	 	 
	 	By: /s/ DOMINICK
      D’ASCOLI 
	 	
                Name:
      Dominick D’Ascoli, Director

                Title:  Duly
      Authorized Signatory

              


      

    

     

    
      
         


      

      
        14

        
          

        

      

      
         


      

    

     

    
      	 	
              WESTLB
      AG, NEW YORK BRANCH,

              as
      Interest Rate Protection Provider

               

               

            
	 	By: /s/ RONALD
      SPITZER 
	 	
              Name:
      Ronald Spitzer, Executive Director

              Title:  Duly
      Authorized Signatory

            
	 	 
	 	By: /s/ DOMINICK
      D’ASCOLI 
	 	
              Name:
      Dominick D’Ascoli, Director

              Title:  Duly
      Authorized Signatory

               

            
	 	
              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

               

            
	 	
              BANCO
      DE SABADELL,

              as
      Senior Secured Party

               

               

            
	 	By: /s/ MAURICI
      LLADO
	 	
              Name:
      Maurici Llado

              Title:  S.V.P.

            


    

    

    

    
      
         


      

      
        15

        
          

        

      

      
         


      

    

    
    

     

    
      	 	
              CIFC
      FUNDING 2007-III LTD.,

              as
      Senior Secured Party

               

               

            
	 	By:
	 	
              Name:

              Title:

               

            
	 	
              CIFC
      FUNDING 2007-IV LTD.,

              as
      Senior Secured Party

               

               

            
	 	By:
	 	
              Name:

              Title:

               

            
	 	
              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:

            


    

     

    
      
         


      

      
        16

        
          

        

      

      
         


      

    

     

    
      	 	
              CITIGROUP
      FINANCIAL PRODUCTS INC.,

              as
      Senior Secured Party

               

               

            
	 	By: /s/ CARL D.
      MEYER
	 	
              Name:
      Carl D. Meyer

              Title:  MD

               

            
	 	
              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

               

               

            
	 	
              LISPENARD
      STREET CREDIT (MASTER), LTD.

              By:
      DiMaio Ahmad Capital LLC, as Investment Manager

               

               

            
	 	By: /s/ KUIJINDER
      CHASE
	 	
              Name:
      Kuijinder Chase

              Title:  Managing
      Director

               

               

            
	 	
              POND
      VIEW CREDIT (MASTER), L.P.

              By:
      DiMaio Ahmad Capital LLC, as Investment Manager

               

            
	 	By: /s/ KUIJINDER
      CHASE
	 	
              Name:
      Kuijinder Chase

              Title:  Managing
      Director

            


    

     

    
      
         


      

      
        17

        
          

        

      

      
         


      

    

     

    
      	 	
              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

               

            
	 	
              HAF
      FUNDING 2008-1 LIMITED,

              as
      Senior Secured Party

               

               

            
	 	By: /s/ SIGNATURE
      ILLEGIBLE
	 	
              Name:

              Title:

               

            
	 	By: /s/ SIGNATURE
      ILLEGIBLE
	 	
              Name:

              Title:  Member
      of the RC

            
	 	
              GREENSTONE
      FARM CREDIT SERVICES, ACA/FLCA,

              as
      Senior Secured Party

               

            
	 	By:
	 	
              Name:

              Title:

               

            
	 	
              METROPOLITAN
      LIFE INSURANCE COMPANY,

              as
      Senior Secured Party

               

               

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

              Title:  Director

            


    

     

    
      
         


      

      
        18

        
          

        

      

      
         


      

    

     

    
      	 	
              NORDKAP
      BANK AG,

              as
      Senior Secured Party

               

            
	 	By: /s/ STEFAN
      GERIG
	 	
              Name:
      Stefan GERIG

              Title:  CIO

               

            
	 	By: /s/ BATCHIMEG
      GADOLA
	 	
              Name:
      Batchimeg Gadola

              Title:  AVP

               

            
	 	
              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

            


    


    
      
         


      

      
        19

        
          

        

      

      
         


      

    

     

    
      	 	
              NORTHWEST
      FARM CREDIT SERVICES, FLCA,

              as
      Senior Secured Party

               

               

            
	 	By: /s/ CASEY
      KINZER
	 	
              Name:
      Casey Kinzer

              Title:  Account
      Manager

               

            
	 	
              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

            


    

     

    
      
         


      

      
        20

        
          

        

      

      
         


      

    

     

    
      	 	
              BANCO
      SANTANDER CENTRAL HISPANO S.A., 

              NEW
      YORK BRANCH,

              as
      Lead Arranger and Co-Documentation Agent

               

               

            
	 	By:
	 	
              Name:

              Title:

               

            
	 	By:
	 	
              Name:

              Title:

               

            
	 	
              BANCO
      SANTANDER CENTRAL HISPANO S.A., 

              NEW
      YORK BRANCH,

              as
      Senior Secured Party

               

               

            
	 	By: 
	 	
              Name:

              Title:

            
	 	 
	 	By: 
	 	
              Name:

              Title:

            


    

     

    
      
         


      

      
        21

        
          

        

      

      
         


      

    

     

    
      	 	
              SHOREBANK
      PACIFIC,

              as
      Senior Secured Party

               

               

            
	 	By: 
	 	
              Name:

              Title:

               

            
	 	
              CIFC
      FUNDING 2007-48, LTD.,

              as
      Senior Secured Party

               

               

            
	 	By: /s/ JAMES G.
      MILLARD
	 	
              Name:
      James G. Millard

              Title:  Authorized
      Signatory

               

            
	 	
              CIFC
      FUNDING 2007-50, LTD.,

              as
      Senior Secured Party

               

               

            
	 	By: /s/ JAMES G.
      MILLARD
	 	
              Name:
      James G. Millard

              Title:  Authorized
      Signatory

            


    

     

    
      
         


      

      
        22

        
          

        

      

      
         


      

    


    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 Madera 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).

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    (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).


    
      
         


      

      
        24

        
          

        

      

      
         


      

    


    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 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).


    
      
         


      

      
        25

        
          

        

      

      
         


      

    


    EXHIBIT
1

    


    UPDATED
13-WEEK CASH FLOW FORECAST

    


    [See
Attached]

     

    26