peix_8k-ex1003.htm


    EXHIBIT
10.03

    SECOND
FORBEARANCE AGREEMENT (LYLES UNITED, LLC)

    


     

    This
SECOND FORBEARANCE AGREEMENT (LYLES UNITED) (“this Agreement”) is entered into
as of March 30, 2009, by and among PACIFIC ETHANOL, INC., a Delaware corporation
(the “Company”), PACIFIC AG. PRODUCTS, LLC (“PAP”), PACIFIC ETHANOL CALIFORNIA,
INC. (“PECA”; together with PAP and the Company, the “PE Parties”, and each
a “PE Party”), LYLES UNITED, LLC, a Delaware limited liability company (the
“Lender”), and LYLES MECHANICAL CO., a California corporation (“Lyles
Mechanical”), as parties to the Loan Documents or the Lyles Mechanical Note or
both.  The Company, PAP, PECA, Lyles Mechanical and Lender are
sometimes referred to individually as a “Party” and collectively as the
“Parties” herein.  Capitalized terms used in this Agreement which are
not otherwise defined herein shall have the meanings given such terms in the
First Forbearance Agreement (defined below) or, to the extent the First
Forbearance Agreement does not define such terms, in the Loan Documents (defined
below).

     

    RECITALS:

     

    WHEREAS,
Lender and the PE Parties are parties to that certain Forbearance Agreement
(Lyles United), dated as of February 26, 2009 (the “First Forbearance
Agreement”);

     

    WHEREAS,
the Note became due and payable without acceleration on March 15, 2009 (the
“Maturity Date”), and Lender is the beneficiary under the PAP Guaranty, and is
the Secured Party under the PAP Security Agreement, and is the beneficiary under
the PECA Guaranty, and is a party to the Joint Instruction Letter, and is a
party to the Restructuring Agreement, all of which relate to the Note
(collectively, the “Loan Documents”);

     

    WHEREAS,
Lender’s affiliate, Lyles Mechanical, is the holder of that certain Promissory
Note (Final Payment), dated October 20, 2008, in the principal amount of $1.5
million by the Company in favor of Lyles Mechanical (the “Lyles Mechanical
Note”), which will become due and payable without acceleration on March 31, 2009
(the “Lyles Mechanical Maturity Date”);

     

    WHEREAS,
the Company has not paid the accrued interest and the $30.0 million principal
balance of the Note due on the Maturity Date, and PAP and PECA did not pay such
amounts under the Guarantees, all of which nonpayments constitute an Event of
Default under the Note and defaults or events of default under the Guarantees
and in accordance with the terms of each of the other Loan Documents (the
“Existing Defaults”);

     

    WHEREAS,
the Company has advised Lyles Mechanical that it will be unable to pay the
amount due and payable under the Lyles Mechanical Note on the Lyles Mechanical
Maturity Date, which nonpayment will constitute an Event of Default under the
Lyles Mechanical Note (the “Anticipated Default”);

     

    WHEREAS,
Lender has various rights and remedies after the occurrence of each of the
Existing Defaults, which Lender has already agreed to forbear from exercising
through March 31, 2009, pursuant to the First Forbearance
Agreement;

     

     

    
      
        
        

      

      
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    WHEREAS,
the Company intends to obtain unsecured loans of $2 million from William L.
Jones (“Jones”) and Neil M. Koehler (“Koehler”), who are principals of one or
more of the PE Parties, in consideration of which the Company intends to issue
to Jones and Koehler certain unsecured promissory notes (collectively, the
“Junior Notes”); and

     

    WHEREAS,
the PE Parties have requested that Lender and Lyles Mechanical agree and,
subject to the terms and conditions of this Agreement, Lender and Lyles
Mechanical have agreed, during (and only during) the Forbearance Period as
defined below in this paragraph, with respect to each of the Existing Defaults
and the Anticipated Default, to forbear from any demand for immediate payment of
any amounts due under the Note, Lyles Mechanical Note or the other Loan
Documents as the case may be, and from any exercise of rights to foreclose on
any or all of the property of any PE Party in which Lender has been granted a
security interest under any of the Loan Documents, or to enforce the Guarantees,
until the earliest to occur of (i) April 30, 2009; (ii) the date of termination
of the Forbearance Period pursuant to Section 5 hereof; and
(iii) the date on which all of the obligations under the Note, the Lyles
Mechanical Note and under any of the other Loan Documents have been paid and
discharged in full and the Note and Lyles Mechanical Note have been canceled
(the “Forbearance Period”):

     

    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 PE Parties, Lyles
Mechanical and Lender 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 PE Party
hereby acknowledges and agrees that (a) the Note and Lyles Mechanical Note
are valid, outstanding and enforceable in accordance with their terms;
(b) Lender has, and shall continue to have, valid, enforceable and
perfected security interests in and liens upon the property of any PE Party in
which Lender has been granted a security interest under any of the Loan
Documents; (c) the Guarantees are valid and enforceable in accordance with
their terms; (d) absent the effectiveness of this Agreement, Lender has, upon
the occurrence of any event of default under any of the Loan Documents, the
right to enforce its security interest in, and liens on, the property of any PE
Party in which Lender has been granted a security interest under any of the Loan
Documents, enforce the obligations of PAP and PECA under the Guarantees, and
enforce its other rights and pursue its other remedies under the Loan Documents;
(e) absent the effectiveness of the First Forbearance Agreement and this
Agreement, the Note was payable in full on the Maturity Date and the Lyles
Mechanical Note is payable in full on the Lyles Mechanical Maturity Date, and
all obligations under the Note, the Lyles Mechanical Note and the Loan Documents
are payable in accordance with the terms thereof, without defense, dispute,
offset, withholding, recoupment, counterclaim or deduction of any kind; and (f)
after giving effect to this Agreement, the Note and the Lyles Mechanical Note
will be payable in full on the earlier to occur of April 30, 2009 and the
termination of the Forbearance Period, and all obligations under the Note, the
Lyles Mechanical Note and any other Loan Documents shall be payable on such date
without defense, dispute, offset, withholding, recoupment, counterclaim or
deduction of any kind.

     

     

    
      
        
        

      

      
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    2.        Forbearance.

     

    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 3 below,
during the Forbearance Period Lender and Lyles Mechanical agree that they shall
not (i) declare the Lyles Mechanical Note to be due and payable or seek to
collect all or any portion of the outstanding principal amount of the Note or
Lyles Mechanical Note or interest thereon, or any other obligations under the
Loan Documents, or (ii) exercise any remedies provided for under the Note, the
Lyles Mechanical Note or the other Loan Documents or applicable law on account
of the Existing Defaults and the Anticipated Defaults.  Upon
termination of the Forbearance Period, Lender and Lyles Mechanical shall have
the right to enforce any and all remedies with respect to any default, including
any event of default then outstanding under the Note or Lyles Mechanical Note or
any of the other Loan Documents (including, without limitation, any Existing
Default and the Anticipated Default), as applicable.   Under all
events and circumstances, the entire principal balance and all accrued and
unpaid interest under the Note and Lyles Mechanical Note and any obligations
under any of the other Loan Documents shall be due and payable immediately and
in full upon expiration of the Forbearance Period (including without limitation
upon termination of the Forbearance Period pursuant to Section 5 below)
without any further notice or demand of any kind or nature
whatsoever.

     

    3.       
Conditions
of Effectiveness of this Agreement.   This Agreement shall
become effective as of the date hereof (the “Effective Date”) when, and only
when:

     

    (a)     
Lender and Lyles Mechanical shall have received counterparts of this Agreement
duly executed and delivered by the PE Parties, and Lender and Lyles Mechanical
shall have executed this Agreement;

     

    (b)    
 Lender and Lyles Mechanical shall have received a copy of the final form
of a forbearance agreement as executed by WestLB, in form and substance
satisfactory to Lender and Lyles Mechanical, regarding the WestLB Credit
Agreement (the “WestLB Forbearance Agreement”), providing for a forbearance
period co-terminous with the Forbearance Period hereunder, and such forbearance
shall be in full force and effect;

     

    (c)     
Lender and Lyles Mechanical shall have received a copy of a final form of a
forbearance agreement executed by Wachovia, in form and substance satisfactory
to Lender and Lyles Mechanical, regarding the Wachovia Loan Agreement (the
“Wachovia Forbearance Agreement”), providing for a forbearance period
co-terminous with the Forbearance Period hereunder, and such forbearance shall
be in full force and effect;

     

    (d)     
Lender and Lyles Mechanical shall have received evidence satisfactory to them
that the Company has received loan proceeds of not less than $2 million nor more
than $3 million from the issuance of the Junior Notes, which Junior Notes shall
be satisfactory in all respects (including, without limitation, term and
ranking) to Lender and Lyles Mechanical; and

     

    (e)     
All of the representations and warranties of the PE Parties 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).

     

     

    
      
        
        

      

      
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    4.       
Representations
and Warranties.  To induce Lender and Lyles Mechanical to enter
into this Agreement, each of the PE Parties represents and warrants to Lender
and Lyles Mechanical (which representations and warranties also shall be deemed
made on and as of the Effective Date):

     

    (a)     
Other than the Existing Defaults and the Anticipated Default, there is no
default or event of default presently outstanding under the Loan Documents or
Lyles Mechanical Note nor any default or event of default presently outstanding
under the First Forbearance Agreement, nor any presently existing condition that
will, with the passage of time, constitute a default or event of default under
the Loan Documents, the Lyles Mechanical Note or the First Forbearance Agreement
during the Forbearance Period;

     

    (b)     
Such PE Party 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
PE Party of this Agreement, (i) are within the PE Party’s corporate power; (ii)
have been duly authorized by all necessary corporate or other action; (iii) do
not contravene or cause the PE Party or any other PE Party to be in default
under (x) any provision of the PE Party’s or other PE 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 PE Party or other PE
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 PE Party or other PE Party or its property; (iv) will not
result in the creation or imposition of any lien or encumbrance upon any of the
property of the PE Party or other PE Party or any subsidiary thereof other than
those in favor of Lender or Lyles Mechanical, all pursuant to the Loan Documents
and the Lyles Mechanical Note; and (e) do not require the consent or approval of
any governmental authority or any other person or entity, other than those which
have been duly obtained, made or complied with and which are in full force and
effect.

     

    (c)     
This Agreement has been duly executed and delivered by such PE
Party.  Each of this Agreement, the Note and the Lyles Mechanical Note
(as modified hereby) and the Loan Documents (as modified by the First
Forbearance Agreement and by this Agreement) to which each PE Party is a party
is the legal, valid and binding obligation of such PE Party, enforceable against
such PE Party 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.

     

    (d)     
Except as may be expressly stated to the contrary elsewhere in this Agreement,
the representations and warranties of each PE Party contained in each Loan
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.

     

     

    
      
        
        

      

      
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    (e)   
  No default or event of default under the Note, Lyles Mechanical Note or
Loan Documents arising other than as a result of the Existing Defaults or the
Anticipated Default shall have occurred and be continuing or would result after
giving effect to any of the transactions contemplated on the date
hereof.

     

    (f)    
  No Forbearance Default (as defined below) has occurred.

     

    5.       
Forbearance
Defaults:  The following events shall constitute “Forbearance
Defaults”:

     

    (a)     
any PE Party shall fail to observe or perform any 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

    


    (b)     
the occurrence of a default or event of default under the Note, the Lyles
Mechanical Note or any of the Loan Documents, other than the Existing Defaults
or the Anticipated Default; or

    


    (c)     
any instrument, document, report, schedule, agreement, representation or
warranty, oral or written, made or delivered to Lender or Lyles Mechanical by
any PE Party shall be false or misleading in any material respect when made, or
deemed made, or delivered; or

    


    (d)     
any event of default has occurred and is outstanding under the WestLB
Forbearance Agreement, or the Wachovia Forbearance Agreement, or any such
forbearance agreement has terminated; or

     

    (e)     
the proceeds of the Junior Notes shall have been fully utilized by the PE
Parties, the Plant Entities, PEHC or any of them on or before April 30, 2009, or
for any reason the Company fails to make available, or is unable to make
available, to any of the PE Entities, funds adequate to support such PE Entity’s
current level of operations (taking into account any other sources of funding
available to such PE Entity).

     

    Upon the
occurrence of any Forbearance Default, Lender and/or Lyles Mechanical may by
notice to the PE Parties immediately terminate the Forbearance Period and/or
declare the obligations under the Lyles Mechanical Note immediately due and
payable; provided, however, that upon
the occurrence of any event of default described in sub-paragraph (c) (Voluntary
Bankruptcy or Insolvency Proceeding) or (d) (Involuntary Bankruptcy or
Insolvency Proceeding) of Section 4 of the Note, and as described in
sub-paragraph (b) (Voluntary Bankruptcy or Insolvency Proceeding) or (c)
(Involuntary Bankruptcy or Insolvency Proceeding) of Section 3 of the Lyles
Mechanical Note, the Forbearance Period shall automatically terminate and all
obligations under the Lyles Mechanical Note shall automatically become
immediately due and payable, without notice or demand of any
kind.  Upon the termination or expiration of the Forbearance Period
(including without limitation a termination of the Forbearance Period pursuant
to this Section 5), if
at such time the outstanding amount of the obligations under the Loan Documents
and the Lyles Mechanical Note have not been paid in full, Lender and Lyles
Mechanical shall be entitled to exercise all of their rights and remedies under
the Note, the Lyles Mechanical Note, the Loan Documents and applicable law, as
the case may be, including, without limitation, the right to declare all of the
obligations under the Lyles Mechanical Note to be immediately due and payable,
without notice or demand of any kind, and the right to enforce any liens on, and
security interests in, the property of any PE Party in which Lender has been
granted a security interest under any of the Loan Documents and enforce the PAP
Guaranty and the PECA Guaranty.  The occurrence of any Forbearance
Default shall constitute an additional Event of Default under the Note, the
Lyles Mechanical Note and the other Loan Documents, and the Note, the Lyles
Mechanical Note, and each of the other Loan Documents is hereby deemed amended
to incorporate such additional Event of Default.

     

     

    
      
        
        

      

      
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    6.      
Forbearance
Period Covenants.  In order to induce Lender and Lyles
Mechanical to enter into this Agreement and forbear during the Forbearance
Period from exercising Lender’s or Lyles Mechanical’s rights and remedies with
respect to the Existing Defaults and the Anticipated Default, each PE Party
covenants that (i) within two business days after the PE Parties or any of them
provide any report to WestLB called for by Section 7 of the WestLB Forbearance
Agreement, the PE Parties shall provide a copy of such report to Lender and
Lyles Mechanical, (ii) each of the PE Parties shall supply to Lender and Lyles
Mechanical any financial information or other report or data reasonably
requested by Lender or Lyles Mechanical during the Forbearance Period,
(iii) the PE Parties shall not borrow any funds from any source during the
Forbearance Period, apart from the loans of up to $2 million evidenced by the
Junior Notes or additional loans of up to an additional $1 million, on terms and
conditions authorized in writing by Lender and Lyles Mechanical in their sole
discretion, for an aggregate of not more than $3 million in borrowing during the
Forbearance Period, and (iv) apart from such loans of up to $3 million in
the aggregate, the PE Parties shall not incur any additional indebtedness during
the Forbearance Period other than trade credit extended in the ordinary course
of business, Wachovia’s revolving line of credit to Kinergy, and unsecured
indebtedness to professionals relating to restructuring of the PE Parties’
indebtedness or bankruptcy.

     

    7.     
  Status of
Credit Agreement and Other Financing Documents; No Novation; Reservation of
Rights and Remedies

    


    (a)     
Upon the Effective Date, each reference any Loan Document to “this Agreement”,
“hereunder”, “hereof” or words of like import, shall mean and be a reference to
such Loan Document as modified and supplemented hereby.

    


    (b)    
This Agreement shall be limited solely to the matters expressly set forth herein
and, except as expressly provided herein, shall not (i) constitute an amendment
or waiver of, or a forbearance with respect to, any term or condition of the
Note, the Lyles Mechanical Note or any other Loan Document, (ii) prejudice any
right or rights which Lender or Lyles Mechanical may now have or may have in the
future under or in connection with the Note, the Lyles Mechanical Note or any
other Loan Document, or (iii) require Lender or Lyles Mechanical to agree to any
additional or future forbearance or to any other transaction of any type or
nature whatsoever;

     

     

    
      
        
        

      

      
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    (c)    
 Except to the extent specifically provided herein, the respective
provisions of the Note, the Lyles Mechanical Note and the other Loan Documents
shall not be amended, modified, waived, impaired or otherwise affected hereby,
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 Note or Lyles Mechanical Note, or
any of the other Loan Documents, except as specifically set forth
herein.

    


    (e)     
Except as expressly provided herein, Lender and Lyles Mechanical expressly
reserve all rights, claims and remedies that it has or may have against the PE
Parties or any of them.

    


    8.      
Acknowledgment
of Validity and Enforceability of the Note, the Lyles Mechanical Note and other
Loan Documents.  Each of the PE Parties expressly acknowledges
and agrees that the Lyles Mechanical Note and the Loan Documents to which it is
a party are valid and enforceable by Lender and Lyles Mechanical against such PE
Party, and except as expressly modified pursuant to this Agreement, expressly
reaffirms each of its obligations under each Loan Document to which it is a
party.  Each of the PE Parties that has granted Lender a security
interest in any such PE Party’s property further expressly acknowledges and
agrees that Lender has a valid, duly perfected, first priority and fully
enforceable security interest in and lien against such property.  Each
of the PE Parties agrees that it shall not dispute the validity or
enforceability of the Note, the Lyles Mechanical Note or any of the other Loan
Documents or any of its obligations thereunder, or the validity, priority,
enforceability or extent of any security interest of Lender in or against any
property of such PE Party, either during or following the expiration of the
Forbearance Period.

    


    9.       
Release; Covenant Not
to Sue.

    


    (a)     
Each of the PE Parties acknowledges that Lender and Lyles Mechanical would not
enter into this Agreement without the PE Parties’ assurance that each PE Party
has no claim against Lender, Lyles Mechanical or any of its 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-Related
Parties” and each, a “Lender-Related Party”) arising out of the Loan Documents
or the transactions contemplated thereby.  Each of the PE Parties, for
itself and on behalf of its officers and directors, and its respective
predecessors, successors and assigns (collectively, the “Releasors”) releases
each Lender-Related Party from any known or unknown claims which any PE Party
now has against any Lender-Related 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 Loan Documents, the Lyles Mechanical
Note 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 9 are binding
upon each Releasor.  The provisions, waivers and releases of this
Section 9 shall
inure to the benefit of each Lender-Related Party.

    


    (d)     
The provisions of this Section 9 shall
survive payment in full of the obligations, full performance of all of the terms
of this Agreement, the Note, the Lyles Mechanical Note and the other Loan
Documents and/or any action by Lender and Lyles Mechanical to exercise any
remedy available under any of the Loan Documents, the Lyles Mechanical Note 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-Related Party from and against any claim, demand, damage, debt, liability
(including payment of reasonable attorneys’ fees and costs actually incurred
whether or not litigation is commenced) based on or arising out of any such
assignment or transfer.

    


    (f)     
 Each Releasor, on behalf of themselves and their successors, assigns, and
other legal representatives, hereby absolutely, unconditionally covenant and
agree with each Lender-Related Party that they will not sue (at law, in equity,
in any regulatory proceeding or otherwise) any Lender-Related Party on the basis
of any Claim released, remised and discharged pursuant to Section 9(a)
above.  If any Releasor violates the foregoing covenant, such Releasor
agrees to pay, in addition to such other damages as any Lender-Related Party may
sustain as a result of such violation, all attorneys’ fees and costs incurred by
any Lender-Related Party as a result of such violation.

     

     

    
      
        
        

      

      
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    10.     No
Waiver.  Each of the PE Parties hereby acknowledges and agrees
that Lender’s or Lyles Mechanical’s failure, at any time or times hereafter, to
require strict performance by any PE Party of any provision or term of this
Agreement, the Note, the Lyles Mechanical Note or any other Loan Document shall
not waive, affect or diminish any right of Lender or Lyles Mechanical thereafter
to demand strict compliance and performance therewith.  Any suspension
or waiver by Lender or Lyles Mechanical 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.

     

    11.     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 or entity shall have any right, benefit or interest under or because of
the existence of this Agreement.

     

    12.     Limitation
on Relationship Between Parties.  The relationship of Lender,
Lyles Mechanical and the PE Parties has been and shall continue to be, at all
times, that of creditor and debtor with respect to the loan outstanding under
the Loan Documents, the Note, and the Lyles Mechanical Note.  Nothing
contained in this Agreement, any instrument, document or agreement delivered in
connection herewith or in the Note, or in the Lyles Mechanical Note or any of
the other Loan Documents shall be deemed or construed to create a fiduciary
relationship between the parties.

    


    13.     No
Assignment.  This Agreement shall not be assignable by any PE
Party without the written consent of Lender and Lyles Mechanical.

    


    14.     Miscellaneous.  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 Note, the Lyles Mechanical Note or any other Loan Document
or any provisions hereof or thereof.

    


    15.     Governing
Law. THIS AGREEMENT
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF CALIFORNIA (OTHER THAN THE CHOICE OF LAW PROVISIONS THEREOF),
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA.

    


    16.     Consultation
with Counsel.  Each of the PE Parties represents to Lender and
Lyles Mechanical that it has discussed this Agreement, including the provisions
of Sections 9,
12 and 15 hereof, with its
attorneys.

     

     

    
      
        
        

      

      
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    17.    
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 facsimile or by “PDF” attachment to an email to the recipient
Party shall be effective as delivery of a manually executed counterpart of this
Agreement.

    


    18.     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.  

     

    19.     No Course
of Dealing.  The Lender and Lyles Mechanical have entered into
this Agreement on the express understanding with the PE Parties that in entering
into this Agreement neither Lender nor Lyles Mechanical is establishing any
course of dealing with the PE Parties.  The Lender’s and Lyles
Mechanical’s rights to require strict performance with all the terms and
conditions of the Loan Documents and the Lyles Mechanical Note as modified by
this Agreement shall not in any way be impaired by the execution of this
Agreement.   The Lender and Lyles Mechanical shall not 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 Lender and Lyles Mechanical,
Lender or Lyles Mechanical may require the payment of fees in connection
therewith.

     

    20.     Expenses.  Each
of the PE Parties hereby acknowledges and agrees that all fees, costs and
expenses of Lender and Lyles Mechanical (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 Company in accordance with the Note and the Lyles Mechanical
Note.

     

    21.    
Further
Assurances.  At Lender’s or Lyles Mechanical’s request, each of
the PE Parties shall execute and deliver such additional documents and take such
additional actions as Lender or Lyles Mechanical requests to effectuate the
provisions and purposes of this Agreement and to protect and/or maintain
perfection of Lender’s security interests in and liens upon any property of any
PE Party in which Lender has been granted a security interest.

     

    [SIGNATURE
PAGE FOLLOWS]

     

     

    
      
        
        

      

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

     

     

    
    

     

    
      	 	
              PACIFIC
      ETHANOL, INC.

              


              


              By: /s/ NEIL M.
      KOEHLER                                                                

              Name: Neil M.
      Koehler

              Title: Chief Executive
      Officer

              


              PACIFIC
      AG. PRODUCTS, LLC

              


              


              By: /s/ NEIL M.
      KOEHLER                                                                

              Name: Neil M.
      Koehler

              Title: Chief Executive
      Officer

              


              PACIFIC
      ETHANOL CALIFORNIA, INC.

              


              


              By: /s/ NEIL M.
      KOEHLER                                                                

              Name: Neil M.
      Koehler

              Title: Chief Executive
      Officer

              


              LYLES
      UNITED, LLC

              


              


              By: /s/ MICHAEL F.
      ELKINS                                                                

              Name:  Michael F.
      Elkins

              Title:    Vice
      President

              


              LYLES
      MECHANICAL CO.

              


              


              By: /s/ JOHN P.
      LEONARDO                                                                

              Name:  John P.
      Leonardo

              Title:    Secretary

            


    

     

     

     

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