Exhibit 10.3


 


Form of Note


  





THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO AN EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 8 HEREOF.


 


Pacific Ethanol, Inc.


 


Senior Secured Note


 


Note No.: D16-___


 





	Issuance Date: December 15, 2016	$[●]



 


FOR VALUE RECEIVED, Pacific Ethanol, Inc., a Delaware
corporation (the “Company”), hereby promises to pay to the order of [INVESTOR] or its registered assigns (“Holder”)
the amount set out above (as reduced pursuant to the terms hereof pursuant to redemption or otherwise, the “Principal”)
when due, whether upon the Maturity Date, acceleration, redemption or otherwise (in each case in accordance with the terms hereof)
and to pay interest (“Interest”) on any outstanding Principal (as defined above) at the applicable Interest
Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance Date”) until the same
becomes due and payable, whether upon the Maturity Date, acceleration, redemption or otherwise (in each case in accordance with
the terms hereof). This Senior Secured Note (including all Senior Secured Notes issued in exchange, transfer or replacement hereof,
this “Note”) is one of an issue of Senior Secured Notes issued pursuant to the Purchase Agreement (as defined
below) on the Issuance Date (collectively, the “Notes” and such other Senior Secured Notes, the “Other
Notes”). Certain capitalized terms used herein are defined in Section 19.


 


THE OBLIGATIONS DUE UNDER THIS SENIOR SECURED NOTE ARE SECURED
BY A SECURITY AGREEMENT (THE “SECURITY AGREEMENT”) DATED AS OF THE ISSUANCE DATE AND EXECUTED BY THE COMPANY
FOR THE BENEFIT OF THE HOLDER. ADDITIONAL RIGHTS OF THE HOLDER ARE SET FORTH IN THE SECURITY AGREEMENT. 


 


1.                 
PAYMENTS OF PRINCIPAL.


 


1.1             
On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal,
all accrued and unpaid Interest and accrued and all other unpaid amounts hereunder. Any such payment shall be applied pro rata
to the Note and the Other Notes in accordance with the respective Principal amounts thereof.


 


1.2             
The Company may, at its sole option, at any time prepay this Note, without premium or penalty, in whole or in part,
on one (1) Business Day’s prior written notice to the Holder, at a prepayment price equal to the amount of outstanding Principal
so to be prepaid, together with accrued and unpaid Interest on such Principal, if any, through the date of such prepayment. Any
such payment shall be applied pro rata to the Note and the Other Notes in accordance with the respective Principal amounts
thereof.


 


 


 






    		1 	 



     

    

 


2.                 
INTEREST; INTEREST RATE. Interest on this Note shall accrue at the applicable Interest Rate and shall commence accruing
on the Issuance Date and Interest shall be computed on the basis of a 360-day year and twelve 30-day months and shall be payable
in cash to the record Holder in arrears on March 15, June 15, September 15 and December 15 of each calendar year, beginning with
March 15, 2017 and ending on the repayment of the Note. From and after the occurrence and during the continuance of any Event
of Default, the applicable Interest Rate shall automatically be increased by two percent (2%) per annum above the Interest Rate
otherwise applicable in accordance with the terms hereof, and all such interest shall be payable on demand. In the event that such
Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of
the date of such cure, provided that the Interest as calculated and unpaid at such increased rate during the continuance
of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default
through and including the date of such cure of such Event of Default.


 


3.                 
RIGHTS UPON EVENT OF DEFAULT.


 


3.1             
Event of Default. Each of the following events shall constitute an “Event of Default”:


 


(a)              
the Company’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as
due under this Note, the Security Agreement or the Purchase Agreement, except, in the case of a failure to pay Interest or other
non-Principal amounts when and as due, in which case only if such failure remains uncured for a period of at least five (5) days;


 


(b)              
bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors
shall be instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third
party, shall not be dismissed within sixty (60) days of their initiation;


 


(c)              
the commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal,
state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated
a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts,
or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability
to pay its debts generally as they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of
any such action or the taking of any action by any Person to commence a UCC foreclosure sale or any other similar action under
federal, state or foreign law or of any substantial part of the Company’s property or any substantial part of any Subsidiary’s
property;


 


 


 






    		2 	 



     

    

 


(d)              
the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or
any Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law
or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document
or any such other decree, order, judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive
days;


 


(e)              
a final judgment, judgments, any arbitration or mediation award or any settlement of any litigation or any other
satisfaction of any claim made by any Person pursuant to any litigation, as applicable, (each a “Judgment”,
and collectively, the “Judgments”) with respect to the payment of cash, securities and/or other assets with
an aggregate fair market value in excess of $2,000,000 are rendered against, agreed to or otherwise accepted by, the Company and/or
any of its Subsidiaries and which Judgments are not, within thirty (30) days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however,
that any Judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating
the $2,000,000 amount set forth above so long as the Company provides the Holder written evidence of such insurance coverage or
indemnity (which evidence shall be reasonably satisfactory to the Holder) to the effect that such Judgment is covered by insurance
or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity
prior to the later of (i) thirty (30) days after the issuance of such Judgment or (ii) any requirement to pay such
Judgment;


 


(f)               
the Company and/or any Subsidiary, individually or in the aggregate, fails to pay, when due, or within any applicable
grace period, any payment with respect to any Indebtedness in excess of $2,000,000 due to any third party or is otherwise in breach
or violation of any agreement for monies owed or owing in an amount in excess of $2,000,000, which breach or violation results
in the acceleration of amounts due thereunder or permits the other party thereto to accelerate amounts due thereunder;


 


(g)              
any breach or failure in any respect by the Company to comply with any provision of this Note or any other Transaction
Document for thirty (30) days after delivery to the Company of notice of such breach or failure by or on behalf of a Secured
Party (as defined in the Security Agreement) or the Agent (as defined in the Security Agreement) or thirty (30) days after an officer
of the Company has knowledge of such breach or failure, unless such default is capable of cure but cannot be cured within such
time frame and the Company is using best efforts to cure the same in a timely manner;


 


(h)              
any Material Adverse Change occurs (other than any Excluded Event) and is not otherwise cured within thirty (30) days
of written notice thereof by the Required Holders;


 


(i)                
any provision of any Transaction Document (shall at any time for any reason (other than pursuant to the express terms
thereof) cease to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof
shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any Subsidiary or any governmental
authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Company
or any Subsidiary shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document
to which it is a party, or any Lien created by the Security Agreement ceases to be enforceable and of the same effect and priority
purported to be created thereby, other than as expressly permitted thereunder or thereunder;


 


 


 


 






    		3 	 



     

    

 


(j)                
any Fundamental Transaction occurs without the written consent of the Required Holders;


 


(k)              
any Event of Default (as defined in the Security Agreement) occurs with respect to the Security Agreement;


 


(l)                
any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes;


 


(m)            
any representation, warranty, certification or other statement of fact made or deemed made by or on behalf of the
Company herein or in any other Transaction Document proves to have been false or misleading in any material respect on or as of
the date made or deemed made; or


 


(n)              
any Subordinated Indebtedness cease for any reason to be validly subordinated to the Indebtedness evidenced by this
Note, or the Company, any Subsidiary or any holder thereof (or its trustee or agent) so asserts.


 


Upon the occurrence of an Event of Default with respect to this
Note or any Other Note, the Company shall promptly deliver written notice thereof via facsimile and overnight courier (with next
day delivery specified) (an “Event of Default Notice”) to the Holder.


 


Notwithstanding anything to the contrary
set forth above or elsewhere herein, the following Indebtedness and obligations, and any defaults with respect thereto, shall not
constitute an Event of Default under Section 3.1(f) above: (i) any payments contested by the Company and/or such Subsidiary
(as the case may be) in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the
payment thereof in accordance with GAAP and, with respect to any subsidiary, such default is otherwise resolved in a manner which
does not result in a Material Adverse Change; and (ii) with respect to any Subsidiary, any default with respect to a non-recourse
obligation and such default does not otherwise result in a Material Adverse Change.


 


3.2             
If an Event of Default (other than an Event of Default specified in Section 3.1(b), (c) or (d) above) occurs,
then the Holder may, by written notice to the Company, declare this Note to be forthwith due and payable, as to Principal, Interest
and any other amounts due hereunder, whereupon this Note shall become forthwith due and payable, without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived by the Company. If any Event of Default specified in Section 3.1(b),
(c) or (d) above occurs, the Principal of and accrued Interest on this Note shall automatically forthwith become due and payable
without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Company.


 


3.3             
If any Event of Default occurs and is continuing, the Holder may pursue any available remedy to collect the payment
of Principal, Interest and any other amounts due under this Note or to enforce the performance of any provision of this Note. If
an Event of Default occurs and is continuing, the holder of this Note may proceed to protect and enforce its rights by an action
at law, suit in equity or other appropriate proceeding. No course of dealing and no delay on the part of the holder of this Note
in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers
or remedies. No right, power or remedy conferred by this Note upon the holder hereof shall be exclusive of any other right, power
or remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise.


 


 


 


 






    		4 	 



     

    

 


4.                 
NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its certificate
of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may
be required to protect the rights of the Holder of this Note.


 


5.                 
COVENANTS. Until all of the Notes have been redeemed or otherwise satisfied in accordance with their terms:


 


5.1             
Rank. All payments due under this Note (a) shall rank pari passu with all Other Notes and
(b) shall be senior to all other Indebtedness of the Company (excluding any other Permitted Indebtedness of the Company).


 


5.2             
Incurrence of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness (other than (i) the Indebtedness
evidenced by this Note and the Other Notes and (ii) Permitted Indebtedness).


 


5.3             
Existence of Liens. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted
Liens.


 


5.4             
Restricted Payments. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents
(in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion
of any Indebtedness (other than Permitted Payments with respect to any Permitted Indebtedness), whether by way of payment in respect
of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made
or, after giving effect to such payment, (i) an event constituting an Event of Default has occurred and is continuing or (ii) an
event that with the passage of time and without being cured would constitute an Event of Default has occurred and is continuing.


 


5.5             
Restriction on Redemption and Cash Dividends. Except for any Permitted Distributions, the Company shall not,
and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or pay any cash dividend
or distribution on any of its capital stock without the prior express written consent of the Required Holders.


 


5.6             
Restriction on Transfer of Assets. The Company shall not, and the Company shall cause each of its Subsidiaries
to not, directly or indirectly, sell, lease, license, assign, transfer, convey or otherwise dispose of any assets or rights of
the Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions,
other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights
by the Company and its Subsidiaries that are in the ordinary course of their respective businesses and, after giving effect thereto,
would not result in a Material Adverse Change, (ii) sales of product, inventory or receivables in the ordinary course of business,
or (iii) Permitted Payments.


 


 


 


 


 






    		5 	 



     

    

 


 


5.7             
Change in Nature of Business. The Company shall not, and the Company shall cause each of its Subsidiaries
to not, directly or indirectly, engage in any material line of business substantially different from those lines of business conducted
by the Company and each of its Subsidiaries on the Issuance Date or any business substantially related or incidental thereto. The
Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, modify its or their corporate
structure or purpose in any material respect.


 


5.8             
Preservation of Existence, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries
to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become
or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by
it or in which the transaction of its business makes such qualification necessary.


 


5.9             
Maintenance of Properties, Etc. The Company shall maintain and preserve in all material respects, and cause
each of its Subsidiaries to maintain and preserve in all material respects, all of its properties which are necessary or useful
in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply, and cause
each of its Subsidiaries to comply, at all times with the provisions of all material leases to which it is a party as lessee or
under which it occupies property, so as to prevent any material loss or forfeiture thereof or thereunder.


 


5.10         
Maintenance of Insurance. The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance
with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability,
hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned
by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly
situated.


 


5.11         
Equity Issuances. The Company shall not, and the Company shall cause each of its applicable Subsidiaries to
not, issue additional capital stock or membership interests, as the case may be, for any purpose other than (i) to pay down a portion
or all of the amounts owned under the Notes, and (ii) shares of the Company’s Common Stock issued to directors, officers
or employees of the Company or its Subsidiaries (including the Excluded Subsidiaries) in their capacity as such pursuant to the
Company’s stock incentive plans.


 


5.12         
Investments in Subsidiaries. Except for any Permitted Investments, the Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, lend money or credit (by way of guarantee or otherwise) or
make advances to any Excluded Subsidiary.


 


5.13         
Delivery of Financial Statements; Information. If the Company is no longer required to file with the Securities
and Exchange Commission (the “SEC”) quarterly and annual reports, including financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, so long as any Principal or Interest is outstanding
under this Note, the Company shall furnish to the Holder such reports within 15 days after it would be required to file them with
the SEC in substantially the form as would be required to file with the SEC if it were required to do so. The Company shall furnish
such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects
of the Company and its subsidiaries as the Holder may reasonably request.


 


 


 


 






    		6 	 



     

    

 


5.14         
Transactions with Affiliates. The Company shall not, and the Company shall cause each of its Subsidiaries
not to, directly or indirectly, enter into or be a party to any transaction, including any purchase, sale, lease, exchange or transfer
of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other
than the Holder or holders of any Other Notes and their respective Affiliates) unless such transaction is on fair and reasonable
terms and conditions no less favorable to Company or the relevant Subsidiary, as the case may be, than those that would have been
obtained in a comparable transaction on an arm’s length basis from an unrelated Person.


 


6.                 
AMENDING THE TERMS OF THIS NOTE. No provision of this Note may be modified or amended without the prior written consent
of the Required Holders and the Company and upon such due modification or amendment, such modification or amendment shall apply
to the Note and all of the Other Notes; provided, however, that (a) no such modification or amendment shall,
without the consent of the Holder hereunder, change the stated maturity date of this Note, or reduce the principal amount hereof,
or reduce the rate or extend the time of payment of any interest hereon, or reduce any amount payable on redemption or prepayment
hereof, impair or affect the right of the Holder to receive payment of principal of, and interest on, the Notes or to institute
suit for payment thereof, or impair or affect the right of the Holder to receive any other payment provided for under this Note,
or change the definition of Required Holders, or change the pro rata sharing provisions of this Note and (b) the Holder hereunder
may waive, reduce or excuse, or forbear from the exercise of any rights and remedies with respect to, any Event of Default under
this Note without notice to or the consent of any holder of any of the Other Notes.


 


7.                 
TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder in whole or in part, subject only
to the provisions of the restrictive legend set forth at the top of the first page of this Note; provided that, so long
as no Event of Default has occurred and is continuing, any such sale, assignment or transfer shall be subject to the prior written
consent of the Company, which consent shall not be unreasonably withheld, delayed or conditioned; provided, further,
that any partial offer, sale, assignment or transfer of this Note shall be in a principal amount not less than $500,000.


 


8.                 
REISSUANCE OF THIS NOTE.


 


8.1             
Transfer. If this Note is to be transferred as permitted under Section 7 above, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance
with Section 8.3), registered as the Holder may request.


 


8.2             
Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification contemplated
below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this
Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 8.3) representing the outstanding
Principal.


 


8.3             
Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this
Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such
new Note, the Principal remaining outstanding, (iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued and unpaid Interest on the Principal and Interest of this Note, from the Issuance Date.


 


 


 


 






    		7 	 



     

    

 


9.                 
REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note
shall be cumulative and in addition to all other remedies available under this Note, under the Security Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note or any other
Transaction Document. The Company covenants to the Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and
the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein,
be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition
to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without
any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested
by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note (including,
without limitation, compliance with Section 5).


 


10.             
PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note,
then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such
bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements.


 


11.             
CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not
be construed against any Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not
form part of, or affect the interpretation of, this Note. Terms used in this Note but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Issuance Date in such other Transaction Documents unless otherwise consented
to in writing by the Holder.


 


12.             
FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving party.


 


13.             
NOTICES; CURRENCY; PAYMENTS.


 


13.1         
Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice
shall be given in accordance with Section 6.5 of the Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the
reason therefore.


 


13.2         
Currency. All principal, interest and other amounts owing under this Note that, in accordance with the terms
hereof, are paid in cash shall be paid in U.S. dollars. All amounts denominated in other currencies shall be converted to
the U.S. dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate”
means, in relation to any amount of currency to be converted into U.S. dollars pursuant to this Note, the U.S. dollar
exchange rate as published in The Wall Street Journal on the relevant date of calculation (it being understood and agreed
that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date
of such period of time).


 


 


 






    		8 	 



     

    

 


13.3         
Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless
otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by wire transfer
of immediately available funds in accordance with the Holder’s wire transfer instructions. Whenever any amount expressed
to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding
day which is a Business Day, with interest accruing until paid.


 


14.             
DISCLOSURE.


 


14.1         
In connection with information that is either required or permitted to be disclosed to the Holder in such Holder’s
capacity as the holder of this Note, on the date such information is to be disclosed, the Company may provide the Holder with such
information; provided either that (i) such information does not contain Non-Public Information, or (ii) if such information
does contain Non-Public Information, such information is Consented Information (as defined below).


 


14.2         
If any such information to be disclosed contains Non-Public Information, the Company shall provide to the Holder
a written notice (which notice shall, for the avoidance of doubt, not contain or constitute Non-Public Information), containing
the following information: (A) a statement as to whether the information is required to be disclosed under the terms of this
Note, (B) if the information is not so required to be disclosed, a statement that the Company or other applicable Person desires
voluntarily to disclose such information, (C) a general description of such information (which description shall not include,
and shall not constitute, Non-Public Information), (D) a statement as to whether the Holder is required or permitted to take
some specific action as a lender under this Note, (E) a statement that such information contains Non-Public Information, and
(F) a statement seeking the consent of the Holder to receive such Non-Public Information. Within two (2) Business Days of
the date of the notice contemplated in the preceding sentence, the Holder shall advise the Company in writing whether it consents
to the receipt of such Non-Public Information (any information for which such consent is provided, “Consented Information”).


 


14.3         
In the event any Non-Public Information is provided to the Holder by the Company, the Company shall promptly and
in compliance with applicable law publicly disclose such Non-Public Information on a Current Report on Form 8-K or otherwise, within
four (4) Business Days of (or such other period of time as may be expressly agreed to in writing by the Investor and the Company
in connection with such disclosure) the disclosure thereof to the Holder (provided that the Company shall provide the Holder
a draft of each such Form 8-K at least two (2) Business Days prior to filing thereof). If the Company fails to disclose any Non-Public
Information in accordance with the immediately preceding sentence, the Holder may publicly disclose such information by issuing
a press release containing such information, or otherwise, within one Business Day of providing Notice to the Company of such intended
disclosure. The Holder shall have no liability to the Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure.


 


14.4         
In no event shall the Company intentionally provide the Holder with any Non-Public Information without the prior
written consent of the Holder. In the absence of any written notice that information provided by the Company contains Non-Public
Information, the Holder may presume that such information (including the notice of such information) does not constitute Non-Public
Information.


 


 


 


 






    		9 	 



     

    

 


15.             
CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid
in full (a) this Note shall automatically be deemed canceled without any action by or notice to Holder or Company and (b) the
Holder shall promptly mark this Note as cancelled, shall promptly surrender this Note to the Company and this Note shall not be
reissued.


 


16.             
WAIVER OF NOTICE. Except for the notices specifically required by this Note or any other Transaction Document, to
the extent permitted by applicable law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other
demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Purchase
Agreement.


 


17.             
GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision of this Note is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith
and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction
to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations,
or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING
OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.


 


18.             
MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest
or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid
or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.


 


19.             
CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:


 


19.1         
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain closed.


 


19.2         
“Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per
share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from
a reclassification of such common stock.


 


 


 


 






    		10 	 



     

    

 


19.3         
“Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent
or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary
purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee
of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with,
or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.


 


19.4         
“Excluded Events” means (i) changes in the national or world economy or financial markets
as a whole, (ii) changes in general economic conditions taken as a whole that affect the industries in which the Company and
its Subsidiaries conduct their business, (iii) acts of terrorism or war, including the engagement by the United States of
America or any other country in hostilities, and whether or not pursuant to the declaration of a national emergency or war, or
any earthquakes, hurricanes or other natural disasters, and (iv) any financial statement impact of the transactions contemplated
by the Transaction Documents.


 


19.5         
“Excluded Subsidiaries” means Kinergy Marketing LLC, Pacific Ag. Products, LLC, Pacific Ethanol
Development, LLC, Pacific Ethanol Central, LLC, Pacific Ethanol Pekin, Inc., Pacific Ethanol Canton, LLC, Pacific Ethanol Aurora
West, LLC, Pacific Ethanol Aurora East, LLC and Pacific Aurora, LLC and each of their respective Subsidiaries.


 


19.6         
“Fundamental Transaction” means that (A) the Company or any of its Subsidiaries shall, directly
or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company or any
of its Subsidiaries is the surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company or any of its Subsidiaries to another Person, or
(iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of
the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person
or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange
offer), or (iv) consummate a securities purchase or business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of
the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other
Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such securities
purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify the Voting Stock of the Company
or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d)
of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate Voting Stock of the Company.


 


19.7         
“GAAP” means United States generally accepted accounting principles, consistently applied.


 


19.8         
“Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing,
in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property),
(F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting
principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all obligations of such
Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any equity interests in such Person or
any other Person or any warrants, rights or options to acquire such equity interests, valued, in the case of redeemable preferred
interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (H) all
indebtedness referred to in clauses (A) through (G) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any mortgage, claim, lien, tax, right of first refusal, encumbrance,
pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights)
owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment
of such indebtedness, and (I) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (H) above.


 


 


 






    		11 	 



     

    

 


19.9         
“Interest Rate” means a rate per annum equal to the 3-month London Interbank Offered Rate (“LIBOR”),
plus 7.0% (the “Interest Rate Spread”); provided, however, that on December 15, 2017 and December
15, 2018, the “Interest Rate Spread” shall be increased to 9.0% and 11.0%, respectively, and; provided, further,
that if at any time during the term of this Note LIBOR is less than 1.0% per annum, the “Interest Rate” shall equal
1.0% plus the amount of the then current “Interest Rate Spread.” The “Interest Rate” shall in all cases
be subject to adjustment as set forth in Section 2.


 


19.10     
“Material Adverse Change” shall mean any set of circumstances or events which occur, arise or
otherwise take place from and after the Issuance Date which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Note or any other Transaction Document, (b) is or could reasonably
be expected to be material and adverse to the business properties, assets, financial condition, results of operations or prospects
of the Company or the Company and any of Subsidiaries on a collective basis, (c) impairs materially or could reasonably be
expected to impair materially the ability of the Company to duly and punctually pay or perform any its obligations under this Note
or any other Transaction Document, or (d) materially impairs or could reasonably be expected to materially impair the ability
of Holder or, in the case of the Security Agreement, the Agent (as defined therein), to the extent permitted, to enforce its legal
rights and remedies pursuant to this Note or any other Transaction Document.


 


19.11     
“Maturity Date” shall mean December 15, 2019.


 


19.12     
“Non-Public Information” means material, non-public information relating to the Company.


 


19.13     
“Permitted Distributions” means (a) dividends by Subsidiaries of the Company to the Company
or other Subsidiaries of the Company, and (b) current quarterly dividends required to be paid by the Company with respect
to the Company’s Series B Cumulative Convertible Preferred Stock pursuant to the organizational documents of the Company
as in effect as of the Issuance Date on the Company. For the avoidance of doubt, to the extent that payment thereof is in the form
of Common Stock, payment of previously accrued and unpaid dividends with respect to the Company’s Series B Cumulative
Convertible Preferred Stock outstanding as of the Issuance Date shall be deemed to be “Permitted Distributions”.


 


19.14     
“Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and the Other Notes;
(ii) Indebtedness of any Excluded Subsidiary, (iii) any Indebtedness secured by a Permitted Lien (other than Indebtedness
referred to in clause (iv) of the definition of “Permitted Lien”), (iv) Indebtedness incurred by the Company that is
made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Holder and approved by the Holder in writing, and which Indebtedness does not provide at any time for (1) the
payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon
until ninety-one (91) days after the Maturity Date or later and (2) total interest and fees at a rate in excess of ten
percent (10%) per annum (collectively, the “Subordinated Indebtedness”); provided, that in the aggregate
outstanding at any time, such Subordinated Indebtedness does not exceed $30,000,000, (v) Indebtedness of the Company or any
of its Subsidiaries and Excluded Subsidiaries existing on the Issuance Date, (vi) such other trade and operating Indebtedness
incurred in the ordinary course of business by the Company (including any of the Company’s Subsidiaries and Excluded Subsidiaries),
including without limitation, unsecured trade debt, financing with respect to the acquisition or lease of equipment and financing
of insurance premiums; provided that in the aggregate outstanding at any time, such Indebtedness does not exceed the greater
of $2,000,000 or three-quarters of one percent (0.75%) of total assets as reported in the Company’s most recent publicly
filed Form 10-K or 10-Q reports, and (vii) the Company’s Series B Cumulative Convertible Preferred Stock outstanding
on the date hereof.


 


 


 


 


 






    		12 	 



     

    

 


19.15     
“Permitted Investments” means (i) investments existing on the date hereof (inclusive of the investment
in the Excluded Subsidiaries in the amount of $25,000,000 being made in part with the proceeds of the Notes), and (ii) additional
investments in the Excluded Subsidiaries that in the aggregate outstanding at any time do not exceed $30,000,000.


 


19.16     
“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested
in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other
similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that
are being contested in good faith by appropriate proceedings, (iv) Liens securing financing obtained in the ordinary course
of the Company's operations, including financing with respect to the acquisition or lease of equipment and financing of insurance
premiums; provided, that (A) such Liens are solely upon and confined solely to the equipment, unearned insurance premiums
or other asset or assets being acquired by such financing and (B) in the aggregate, the Indebtedness secured by such liens does
not exceed the greater of $2,000,000 or three-quarters of one percent (0.75%) of total assets as reported in the Company's most
recent publicly filed Form 10-K or 10-Q reports, (v) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, and (vi) any Lien on the assets or properties of the Excluded Subsidiaries.


 


19.17     
“Permitted Payments” means any payments, distributions or transfers with respect to (i) any
Permitted Indebtedness (in the case of Subordinated Indebtedness, to the extent permitted by the relevant subordination or intercreditor
agreement) and (ii) any Permitted Distributions.


 


19.18     
“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation,
a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.


 


19.19     
“Purchase Agreement” means the Note Purchase Agreement, dated as of December 12, 2016, by and
among the Company, the Holder, and each other “Investor” (as defined therein) as amended, restated or otherwise modified
from time to time.


 


19.20     
“Required Holders” means the holders of Notes representing at least 66 2/3% of the aggregate principal
amount of the Notes then outstanding (excluding any Notes held by the Company or any of its Subsidiaries).


 


19.21     
“Subsidiary” means any Person in which the Company, directly or indirectly, (I) owns any
of the outstanding capital stock or holds any equity or similar interest of such Person or (II) controls or operates all or
any part of the business, operations or administration of such Person; provided that, for purposes of this Note, the term
“Subsidiary” shall expressly exclude the Excluded Subsidiaries.


 


19.22     
“Transaction Documents” means this Note, the Other Notes, the Security Agreement and each Purchase
Agreement, together with any amendments, restatements, extensions or other modification thereto.


 


19.23     
“Voting Stock” means voting equity interests.


 


FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THIS NOTE IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT ON THE ISSUANCE DATE OF
THIS NOTE. THE COMPANY AGREES TO PROVIDE PROMPTLY TO EACH HOLDER OF THIS NOTE, UPON WRITTEN REQUEST (1) THE ISSUE PRICE, (2) THE
AMOUNT OF ORIGINAL ISSUE DISCOUNT AND (3) THE YIELD TO MATURITY OF THIS NOTE. ANY SUCH WRITTEN REQUEST SHOULD BE SENT TO THE
COMPANY AT THE FOLLOWING ADDRESS: 400 CAPITOL MALL, SUITE 2060, SACRAMENTO, CA 95814, ATTN: BRYON T. MCGREGOR, CFO.


 


[signature page follows]


 


 


 


 






    		13 	 



     

    

 


IN WITNESS WHEREOF, the Company has caused
this Note to be duly executed as of the first date set forth above.


 


PACIFIC ETHANOL, INC.







By:   ___________________________


Name:
Bryon T. McGregor

Title: Chief Financial Officer


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


[Signature Page to Senior Secured
Note]






    			 



     

    

 


AGREED AND ACCEPTED:


HOLDER:


 


 


CORTLAND CAPITAL MARKET SERVICES LLC


 


 


By: _________________________


Name:


Title:







 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


[Holder Acknowledgement of Senior Secured
Note]