Pacific Ethanol, Inc.


400 Capitol Mall, Suite 2060


Sacramento, CA 95814


 


March 27, 2013


Holders of the Company’s

Series B Preferred Stock


Identified on Schedule 1 hereto


 


 


 


		Re:	Accrued Dividends



 


Gentlemen:


 


This letter agreement (the
“Letter Agreement”) is provided with respect to certain rights of the undersigned
holders (collectively, the “Holders”) of shares of Series B Cumulative Convertible
Preferred Stock, $.001 par value per share (the “Series B Preferred Stock”), of Pacific Ethanol, Inc. (the “Company”)
under the Company’s Certificate of Designations, Powers, Preferences, and Rights of the Series B Cumulative Convertible Preferred
Stock (the “Series B Certificate of Designations”).


 


The Series B Certificate of Designations provides
for the payment of quarterly cumulative dividends (“Cumulative Dividends”) with respect to the Series B Preferred
Stock. From January 1, 2009, through December 31, 2011, the Company did not pay Cumulative Dividends to the Holders. The Company
paid a total of $1,462,984 of the Cumulative Dividends as of December 31, 2012. Exhibit A attached sets forth the
sum of accrued and unpaid dividends with respect to each Holder as of March 13, 2013 (collectively, the “Unpaid Dividends”).


 


Notwithstanding any previous
agreement between the undersigned and the Company and subject to the terms and conditions set forth herein, each of the undersigned
Holders desires to forbear from exercising rights, if any, held by such Holder with respect to the Unpaid Dividends.


 


In consideration of each Holder’s
agreement to forbear from exercising its rights, the Company agrees to pay $731,492 of the Unpaid Dividends as provided below.


 


In consideration of the mutual
covenants herein contained, and for other valuable consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:


 




    	 



    	 



    

Holders of the Company’s Series B Preferred
Stock

Page 2


 


 


1.                 
Forbearance. Subject to the delivery of the Shares in accordance with Paragraph 3, each Holder agrees
that until the earlier to occur of (i) September 30, 2014, or (ii) the occurrence of any Forbearance Default (as hereinafter defined)
(the “Forbearance Period”), each Holder will forbear from exercising any and all of its respective rights and
remedies against the Company with respect to any remaining Unpaid Dividends, including, but not limited to, demanding payment of
any Unpaid Dividends and bringing any action or claim with respect to any Unpaid Dividends.


 


2.                 
Tolling. The parties hereto stipulate, covenant, and agree that the running of any and all affirmative defenses
of the Company based on (a) any statutes of limitation, (b) the doctrine of laches, or (c) any failure of the Holders to institute
or commence litigation or other legal proceedings within some specified period, before a specified date, or before the happening
of a specified event, applicable to all claims or causes of action that any Holder may be entitled to take or bring in order to
enforce or otherwise arising out of or relating to their respective rights and remedies against the Company with respect to the
Unpaid Dividends is, to the fullest extent permitted by law, tolled and suspended during the Forbearance Period.


 


3.                 
Payment of Dividend; Delivery of Shares. The Company shall pay to each Holder the sum set opposite the Holder’s
name on the signature page hereto (the “Payment”) by issuing and delivering to each such Holder the number of shares
(collectively, the “Shares”) of the Company’s common stock (the “Common Stock”) equal
to the quotient obtained by dividing (a) the Payment, by (b) $0.35. The offering and issuance of the Shares (the “Offering”)
are being made pursuant to (a) an effective Registration Statement on Form S-3 (File No. 333-180731) (including the prospectus
contained therein), filed by the Company with the Securities and Exchange Commission (the “Commission”), and
(b) a prospectus supplement containing certain supplemental information regarding the terms of the Offering of the Shares, that
will be filed with the Commission on the date hereof and delivered to each Holder (or may available to each Holder by the filing
by the Company of an electronic version thereof with the Commission). On the day that is the third Trading Day after the date hereof,
the Company shall deliver to each Holder that number of Shares set forth opposite such Holder’s name on the signature page
hereto through the facilities of the Depository Trust Company’s DWAC system. For purposes hereof, the term “Trading
Day” shall mean any day on which the Common Stock is traded on the principal securities exchange or securities market
on which the Common Stock is then traded.


 


4.                 
Acknowledgment of Non-Payment; Non-Waiver. By executing this Letter Agreement, the Company acknowledges and
agrees that, except as expressly provided herein, (a) the Holders’ rights under the Series B Certificate of Designations
have not been waived by the Holders, and (b) no Holder has made and is not making any commitment, and there is no understanding,
explicit or implicit, relating to, or affecting, any forbearance or any other matter beyond that set forth in this Letter Agreement.


 




    	 



    	 



    

Holders of the Company’s Series B Preferred
Stock

Page 3


 


 


5.                 
Full Force and Effect. Except as otherwise provided herein, the Series B Certificate of Designations shall
remain unchanged and in full force and effect. Except as expressly set forth above, nothing in this Letter Agreement shall be construed
as a waiver of any rights of any of the parties to this Letter Agreement under the Series B Certificate of Designations.


 


6.                 
Forbearance Default. As used herein, “Forbearance Default” means any of the following:


 


a.      
The Company fails to timely perform or observe any requirement of this Letter Agreement or the documents, instruments and
agreements executed in connection herewith;


 


b.     
The Company fails to pay future Cumulative Dividends on a timely basis in accordance with the Series B Certificate of Designation;


 


c.      
The Company dissolves, liquidates, winds up, or otherwise ceases its on-going business operations; or


 


d.     
The Company (or any subsidiary): (i) makes a transfer in fraud of creditors, or makes an assignment for the benefit of creditors;
(ii) has a receiver, trustee or custodian appointed for, or take possession of, all or substantially all of the assets of the Company,
either in a proceeding brought by such party or in a proceeding brought against such party and such appointment is not discharged
or such possession is not terminated within sixty (60) calendar days after the effective date thereof or such party consents to
or acquiesces in such appointment or possession; (iii) files a petition for relief under any Insolvency Law or an involuntary petition
for relief is filed against such party under any Insolvency Law and such involuntary petition is not dismissed within sixty (60)
calendar days after the filing thereof, or an order for relief naming such party is entered under any Insolvency Law, or any composition,
rearrangement, extension, reorganization or other relief of debtors now or hereafter existing is requested or consented to by such
party; (iv) fails to have discharged within a period of thirty (30) calendar days any attachment, sequestration or similar writ
levied upon any property of such party in an amount exceeding $1,000,000; or (v) fails to pay within thirty (30) calendar days
any final money judgment against such party in an amount exceeding $1,000,000. (For purposes hereof, “Insolvency Law”
means Title 11 of the United States Code (or any successor law) or any similar applicable law providing for bankruptcy, insolvency,
conservatorship, receivership or other similar debtor’s relief.)


 




    	 



    	 



    

Holders of the Company’s Series B Preferred
Stock

Page 4


 


 


7.               Entire Agreement. This Letter Agreement constitutes the entire agreement between the parties with respect
to the subject matter hereof and supersedes any prior understandings, agreements or representations by or between the parties,
written or oral, to the extent they relate in any way to the subject matter hereof.


 


8.               Amendments and Waivers; Severability. This Letter Agreement may not be amended or modified, and no provisions
hereof may be waived, without the written consent of the Company and each of the Holders. No action taken pursuant to this Letter
Agreement shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty,
covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Letter Agreement shall
not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach.
No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.


 


9.               Governing
Law. This Letter Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws
of the State of Delaware, without giving effect to the principles of conflicts of laws thereunder which would specify the application
of the law of another jurisdiction.


 


10.             Counterparts. This Letter Agreement may be executed, including by facsimile signature, in one or more counterparts,
each of which shall be deemed an original but all of which together will constitute one and the same instrument.


 


 


[Signatures Follow.]


 


 


 




    	 



    	 



    




Holders of the Company’s Series B Preferred
Stock

Page 5


 


 


In witness whereof, the
parties have executed this Letter Agreement as of the first date set forth above.


 


	 	PACIFIC ETHANOL, INC.	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
		By: 	/s/ NEIL M. KOEHLER	 
	 	 	Neil M. Koehler, Chief Executive Officer	 
	 	 	 	 
	 	 	 	 


 


 


	HOLDERS:	 	PAYMENT AMOUNT:
	 	 	 
	
        Lyles United, LLC

         
	 	 
	By:  	/s/ WILL LYLES	 	$367,068
	
        Name: Will Lyles

        Title: V.P.
	 	 
	 	 	 
	 	 	 
	 	 	 
	/s/ FRANK P. GREINKE	 	$189,656
	
        Frank P. Greinke, as Trustee under

        the Greinke Personal Living Trust
	 	 
	 	 	 
	 	 	 
	/s/ ROBERT W. BOLLAR	 	$27,009
	
        Robert W. Bollar, as Trustee of the

        Bollar Living Trust
	 	 
	 	 	 
	 	 	 
	/s/ MIMI S. TAYLOR	 	$27,009
	Mimi S. Taylor	 	 
	 	 	 
	 	 	 
	/s/ NEIL M. KOEHLER	 	$105,000
	Neil M. Koehler	 	 


 


[SIGNATURES CONTINUED ON FOLLOWING PAGE]


 




    	 



    	 



    

Holders of the Company’s Series B Preferred
Stock

Page 6


 


 



	 	 	 
	/s/ BILL JONES	 	$5,250
	Bill Jones	 	 
	 	 	 
	/s/ PAUL P. KOEHLER	 	$5,250
	Paul P. Koehler	 	 
	 	 	 
	/s/ THOMAS D. KOEHLER	 	$5,250
	Thomas D. Koehler	 	 


 


 


 


 




    	 



    	 



    

Schedule
1


Holders of Series B Preferred Stock


 


William M. Lyles IV


Lyles United, LLC


1210 West Olive Avenue


Fresno, CA 93728


 


Frank P. Greinke, Trustee, Greinke Personal Living Trust


P.O. Box 4159


1800 W. Katella, Ste. 400


Orange, CA 92863


 


Robert W. Bollar, Trustee, Bollar Living Trust


P.O. Box 4159


1800 W. Katella, Ste. 400


Orange, CA 92863


 


Mimi S. Taylor


P.O. Box 4159


1800 W. Katella, Ste. 400


Orange, CA 92863


 


Neil M. Koehler


c/o Pacific Ethanol, Inc.


400 Capitol Mall, Suite 2060


Sacramento, CA 95814


 


William L. Jones


c/o Pacific Ethanol, Inc.


400 Capitol Mall, Suite 2060


Sacramento, CA 95814


 


Paul P. Koehler


c/o Pacific Ethanol, Inc.


400 Capitol Mall, Suite 2060


Sacramento, CA 95814


 


Thomas D. Koehler


c/o Pacific Ethanol, Inc.


400 Capitol Mall, Suite 2060


Sacramento, CA 95814


 


 




    	 



    	 



    

Exhibit
A


Unpaid Dividends at March 13, 2013


 


	Lyles United	 	$	2,936,547	 
	Greinke Trust	 	 	1,517,251	 
	Neil Koehler	 	 	839,999	 
	Bill Jones	 	 	41,998	 
	Paul Koehler	 	 	41,998	 
	Tom Koehler	 	 	41,998	 
	Bollar Trust	 	 	216,073	 
	Mimi S. Taylor	 	 	216,073	 
	TOTAL	 	$	5,851,937