Exhibit 10.5


 


Execution Version


 


ALL LIENS AND SECURITY INTERESTS EVIDENCED
BY THIS AGREEMENT SHALL AT ALL TIMES BE SUBORDINATE AND JUNIOR TO THE LIENS AND SECURITY INTERESTS GRANTED TO
CoBank, ACB, a federally-chartered instrumentality of the United States, PURSUANT TO that certain Security Agreement dated as of
SEPTEMBER 15, 2017 (AS AMENDED FROM TIME TO TIME) MADE BY Debtors (dEFINED BELOW) IN FAVOR OF SENIOR AGENT AND SUBJECT TO
THE TERMS OF THAT CERTAIN INTERCREDITOR AGREEMENT EVEN DATED HEREWITH (AS AMENDED FROM
TIME TO TIME) BY AND AMONG SENIOR AGENT, DEBTOR, AGENT (DEFINED BELOW), AND THE OTHER PARTIES PARTY THERETO.


 


SECURITY AGREEMENT

(PACIFIC ETHANOL CENTRAL, LLC)


 


This Security Agreement,
dated as of March 20, 2020 (as amended, supplemented or otherwise modified from time to time in accordance with the provisions
hereof, this “Agreement”), made by and between PACIFIC ETHANOL CENTRAL, LLC, a limited liability company organized
under the laws of Delaware (“Grantor”), and Cortland Products Corp., as collateral agent for the benefit of
the Noteholders (in such capacity, together with its successors and assigns in such capacity, the “Agent”; together
with the Noteholders, the “Secured Parties”).


 


RECITALS:


 


WHEREAS, Pacific Ethanol,
Inc., a Delaware corporation (the “Company”) issued certain secured promissory notes in the aggregate original
principal amount of $55,000,000 on December 15, 2016 (the “Initial Notes”) pursuant to a Note Purchase Agreement
dated as of December 12, 2016 by and among the Company and the Investors identified therein (as amended, restated, supplemented
or otherwise modified from time to time, including amendments and restatements thereof in its entirety, the “Initial Purchase
Agreement”);


 


WHEREAS, the Company
and certain Investors identified therein are parties to a Note Purchase Agreement dated as of June 26, 2017 (as amended, restated,
supplemented or otherwise modified from time to time, including amendments and restatements thereof in its entirety, the “Additional
Purchase Agreement”), pursuant to which the Company issued $13,948,078 in aggregate original principal amount of senior
secured notes due December 15, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the “Additional
Notes”).


 


WHEREAS, the Noteholders
are holders of the Initial Notes, the Additional Notes and certain other secured promissory notes issued by the Company on December
16, 2019 (the “Existing Notes”);


 


WHEREAS, pursuant
to that certain Senior Secured Note Amendment Agreement dated as of December 22, 2019 between the Noteholders defined therein and
the Company (as amended, restated, supplemented or otherwise modified from time to time, including amendments and restatements
thereof in its entirety, the “Amendment Agreement”), the Existing Notes were amended and restated in their entirety
(the “Amended Notes,” and together with the Amendment Agreement and the Transaction Documents (as defined in
the Initial Noteholder Security Agreement (as defined below)), the “Notes Amendment Documents”);


 




     


     


    

  


WHEREAS, Cortland
Products Corp. has been appointed by the Noteholders to act as collateral agent under the Notes Amendment Documents (and as successor
to Cortland Capital Market Services LLC in such capacity) pursuant to that certain Security Agreement, dated as of December 15,
2016 (as amended, restated, supplemented or otherwise modified from time to time, including amendments and restatements thereof
in its entirety), among the Company, the Agent and the other Secured Parties;


 


WHEREAS, Grantor
and CoBank, ACB, a federally-chartered instrumentality of the United States (“Senior Agent”), are party to that
certain Security Agreement dated as of March 20, 2019 (“Senior Agent Security Agreement”), wherein Grantor granted
to Senior Agent a First Priority Lien in the Collateral, securing the payment and performance when due of the Secured Obligations
(as defined in the Senior Agent Security Agreement);


 


WHEREAS, the Lien
granted herein shall be junior and subordinate in priority to the Lien granted to Senior Agent, as set forth in that certain Intercreditor
Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor
Agreement”) by and among Senior Agent, Agent, Pacific Ethanol, Inc. and the Grantors party thereto; and


 


WHEREAS, to secure
the obligations of the Company under the Notes Amendment Documents, pursuant to the Notes Amendment Documents, the Grantor is required
to enter into this Agreement.


 


NOW, THEREFORE, for
Ten Dollars ($10.00) in hand paid to Grantor and in consideration of the premises and mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to secure the timely payment
and performance of the Secured Obligations (as hereinafter defined), the parties hereto agree as follows:


 


1. Definitions.


 


(a) Each capitalized
term used herein, unless otherwise defined herein, shall have the meaning ascribed to such term in the Amendment Agreement or the
Initial Noteholder Security Agreement, as applicable. As used herein, the following terms shall have the following meanings:


 


“Collateral”
has the meaning set forth in Section 2.


 


“Existing
Notes” has the meaning set forth in the Recitals.


 


“First Priority”
means, with respect to any Lien purported to be created in any Collateral pursuant to this Agreement, such Lien is the most senior
Lien to which such Collateral is subject (subject only to Permitted Liens).


 




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“Initial
Noteholder Security Agreement” means that certain Security Agreement, dated as of December 15, 2016, by and among the
Company, the Noteholders party thereto, and the Agent, as amended by that certain First Amendment to Security Agreement, dated
June 30, 2017, by and among the Company, the Noteholders party thereto, and the Agent, that certain Second Amendment to Security
Agreement, dated December 22, 2019, by and among the Company, the Noteholders party thereto, and the Agent, and that certain Third
Amendment to Security Agreement, dated as of the date hereof, by and among the Company, the Noteholders party thereto, and the
Agent, as the same may be further amended, restated, supplemented or otherwise modified from time to time.


 


“Noteholders”
means (x) each Person that is (i) a signatory to the Amendment Agreement and identified as a “Noteholder” on Exhibit
A to the Amendment Agreement, (ii) a holder of any of the Notes (as defined in the Amendment Agreement), and (iii) a “Secured
Party” party to the Initial Noteholder Security Agreement and (y) any other Person that becomes (i) a holder of any of the
Notes pursuant to any permitted assignment or transfer and (ii) a “Secured Party” under the Initial Noteholder Security
Agreement pursuant to a Security Agreement Joinder, other than any such Person that ceases to be a party to such agreement pursuant
to an assignment of all of its Notes and its rights and obligations under the Transaction Documents (as defined in the Initial
Security Agreement).


 


“Proceeds”
means “proceeds” as such term is defined in section 9-102 of the UCC and, in any event, shall include all dividends
or other income from the Collateral, collections thereon or distributions with respect thereto.


 


“Secured Obligations”
has the meaning set forth in Section 3.


 


“UCC”
means the Uniform Commercial Code as in effect from time to time in the State of New York or, when the laws of any other state
govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial
Code as in effect from time to time in such state.


 


(b) Deposit Accounts.
All of the Grantor’s deposit accounts are listed on Schedule 2 attached hereto and made a part hereof. Each of the
deposit accounts listed on Schedule 2 shall be deemed to be a “deposit account” referenced in the definition
of “Collateral” contained in Section 2 of this Agreement and shall be subject in all respects to the security interest
granted by the Grantor to the Agent on behalf of each Secured Party pursuant to this Agreement. Upon establishing a deposit account
that is not listed on Schedule 2 (to the extent that establishing such deposit account is otherwise permitted hereunder
and under any other Notes Amendment Document), the Grantor shall promptly give notice to the Agent that such deposit account has
been established and shall immediately execute or otherwise authenticate a supplement to Schedule 2 that includes such deposit
account and take all action necessary to give the Agent on behalf of each Secured Party “control” (as such term is
defined in the UCC) over such deposit account, including causing the applicable bank or financial institution to enter into a control
agreement (in form and substance acceptable to the Agent) with the Agent for such deposit account.


 


2. Grant of Security
Interest. Grantor hereby grants to the Agent, on behalf of each Secured Party a continuing security interest in all of its
right, title and interest in and to the following, wherever located, whether now existing or hereafter arising or acquired (collectively,
the “Collateral”):


 




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(a) all accounts (including
health-care-insurance receivables), goods (including inventory and equipment), goods (including inventory and equipment) currently
or hereafter held on consignment, documents (including, if applicable, electronic documents), fixtures, instruments, promissory
notes, chattel paper (whether tangible or electronic), letters of credit, letter-of-credit rights (whether or not the letter of
credit is evidenced by a writing), securities and all other investment property, commercial tort claims described on Schedule
1 hereof as supplemented by any written notification given by Grantor to Agent pursuant to Section 4(e), general intangibles
(including all payment intangibles), money, deposit accounts (including each of the deposit accounts listed on Schedule 2 attached
hereto), and any other contract rights or rights to the payment of money; and


 


(b) all Proceeds and
products of each of the foregoing, all books and records relating to the foregoing, all supporting obligations related thereto,
and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any and
all Proceeds of any insurance, indemnity, warranty or guaranty payable to Grantor from time to time with respect to any of the
foregoing.


 


3. Secured Obligations.
The Collateral secures the payment and performance of (a) all indebtedness and obligations of the Company and the Grantor under
the Notes Amendment Documents and (b) and all indebtedness and obligations of the Company and the Grantor owed to the Secured Parties
now or hereafter existing under this Agreement (collectively, “Secured Obligations”).


 


4. Perfection of Security
Interest and Further Assurances.


 


(a) Grantor shall,
from time to time, as may be required by Agent with respect to all Collateral, promptly take all actions as may be reasonably requested
by Agent to perfect the Lien of Agent in the Collateral, including, with respect to all Collateral over which control may be obtained
within the meaning of sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC, section 201 of the federal Electronic Signatures
in Global and National Commerce Act and, as the case may be, section 16 of the Uniform Electronic Transactions Act, as applicable,
Grantor shall promptly take all actions as may be reasonably requested from time to time by Agent so that control of such Collateral
is obtained and at all times held by the Agent on behalf of each Secured Party. All of the foregoing shall be at Grantor’s
sole cost and expense.


 


(b) Grantor hereby
irrevocably authorizes Agent or its designees at any time and from time to time to file in any relevant jurisdiction any financing
statements and amendments thereto that contain the information required by Article 9 of the UCC of each applicable jurisdiction
for the filing of any financing statement or amendment relating to the Collateral, including any financing or continuation statements
or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the Lien granted by Grantor hereunder,
without Grantor’s signature where permitted by law, including the filing of a financing statement describing the Collateral
as all assets now owned or hereafter acquired by Grantor, or words of similar effect. Grantor agrees to provide all information
required by Agent pursuant to this Section promptly to Agent upon request.


 




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(c) Grantor hereby
further authorizes Agent or its designees to file with the United States Patent and Trademark Office and the United States Copyright
Office (and any successor office and any similar office in any state of the United States or in any other country) this Agreement
and other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the Lien granted by Grantor
hereunder, without Grantor’s signature where permitted by law.


 


(d) If Grantor shall
at any time hold or acquire any certificated securities, promissory notes, tangible chattel paper, negotiable documents or warehouse
receipts relating to the Collateral, Grantor shall promptly indorse, assign and deliver the same to Agent, accompanied by such
instruments of transfer or assignment duly executed in blank as Agent may from time to time specify.


 


(e) If Grantor shall
at any time hold or acquire a commercial tort claim, Grantor shall (a) promptly notify Agent in a writing signed by Grantor of
the particulars thereof and grant to Agent on behalf of the Secured Parties in such writing a Lien therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Agent and (b) deliver
to Agent an updated Schedule 1.


 


(f) If any Collateral
is at any time in the possession of a bailee, Grantor shall promptly notify Agent thereof and, at Agent’s request and option,
shall promptly obtain an acknowledgment from the bailee, in form and substance satisfactory to Agent, that the bailee holds such
Collateral for the benefit of the Secured Parties and the bailee agrees to comply, without Grantor’s further consent, at
any time with instructions of Agent as to such Collateral.


 


(g) If Grantor is at
any time a beneficiary under a letter of credit, Grantor will promptly notify Agent and, at Agent’s request, Grantor will,
pursuant to an agreement in form and substance reasonably acceptable to Agent, either (a) arrange for the issuer and any confirmer
or other nominated person of such letter of credit to consent to an assignment to Agent of the proceeds of the letter of credit
or (b) arrange for Agent to become the transferee beneficiary of the letter of credit.


 


(h) Grantor agrees
that at any time and from time to time, at Grantor’s expense, Grantor will promptly execute and deliver all further instruments
and documents, obtain such agreements from third parties, and take all further action, that may be necessary or desirable, or that
Agent may reasonably request, in order to perfect and protect any Lien granted hereby or to enable Agent to exercise and enforce
its and the other Secured Parties’ rights and remedies hereunder or under any other agreement with respect to any Collateral.


 


5. Representations
and Warranties. Grantor represents and warrants as follows:


 


(a) (i) Grantor’s
exact legal name is that indicated on the signature page hereof and (ii) Grantor is an organization of the type, and is organized
in the jurisdiction, set forth in the preamble hereof.


 




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(b) The Collateral
consisting of securities have been duly authorized and validly issued, and are fully paid and non-assessable and subject to no
options to purchase or similar rights. Grantor holds no commercial tort claims except as indicated on Schedule 1. None of
the Collateral constitutes, or is the proceeds of, “farm products” as defined in section 9-102(a)(34) of the UCC. None
of the account debtors or other persons obligated on any of the Collateral is a governmental authority covered by the Federal Assignment
of Claims Act or like federal, state or local statute or rule in respect of such Collateral. Grantor has at all times operated
its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous
materials or substances.


 


(c) At the time the
Collateral becomes subject to the Lien created by this Agreement, Grantor will be the sole, direct, legal and beneficial owner
thereof, free and clear of any Lien, claim, option or right of others except for the Lien created by this Agreement and other Permitted
Liens.


 


(d) The grant of security
interest in the Collateral pursuant to this Agreement creates a valid and perfected Lien in the Collateral, securing the payment
and performance when due of the Secured Obligations.


 


(e) Grantor has full
power, authority and legal right to grant a security interest in the Collateral pursuant to this Agreement.


 


(f) This Agreement
has been duly authorized, executed and delivered by Grantor and constitutes a legal, valid and binding obligation of Grantor enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting
creditors’ rights generally and subject to equitable principles (regardless of whether enforcement is sought in equity or
at law).


 


(g) No authorization,
approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the
issuance of the Amended Notes and the grant of the security interest by Grantor of the Collateral pursuant to this Agreement or
for the execution and delivery of this Agreement by Grantor or the performance by Grantor of its obligations thereunder, other
than filings to perfect the security interest.


 


(h) The execution and
delivery of this Agreement by Grantor and the performance by Grantor of its obligations hereunder, will not violate any provision
of any applicable law or regulation or any order, judgment, writ, award or decree of any court, arbitrator or governmental authority,
domestic or foreign, applicable to Grantor or any of its property, or the organizational or governing documents of Grantor or any
agreement or instrument to which Grantor is party or by which it or its property is bound.


 


(i) Grantor has taken
all action required on its part for control (as defined in sections 8-106, 9-104, 9-105, 9-106 and 9-107 of the UCC, section 201
of the federal Electronic Signatures in Global and National Commerce Act and, as the case may be, section 16 of the Uniform Electronic
Transactions Act, as applicable) to have been obtained by Agent over all Collateral with respect to which such control may be obtained
pursuant to the UCC. No person other than Senior Agent or Agent has control or possession of all or any part of the Collateral.




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6. Accounts Receivable.


 


(a) Agent may at any
time and from time to time send or require Grantor to send requests for verification of Accounts or notices of assignment to account
debtors and other obligors. Agent may also at any time and from time to time telephone account debtors and other obligors to verify
accounts.


 


(b) After the obligations
of the Grantor under the CoBank Debt Documents are paid in full:


 


(i) the Agent may establish
a collateral account for the deposit of checks, drafts and cash payments made by Grantor’s account debtors. If a collateral
account is so established, Grantor shall promptly deliver to Agent, for deposit into said collateral account, all payments on Accounts
and chattel paper received by it. All such payments shall be delivered to Agent in the form received (except for Grantor’s
endorsement where necessary). Until so deposited, all payments on Accounts and chattel paper received by Grantor shall be held
in trust by Grantor for and as the property of Agent on behalf of the Secured Parties and shall not be commingled with any funds
or property of Grantor. All deposits in said collateral account shall constitute proceeds of Collateral and shall not constitute
payment of any Secured Obligation. Unless otherwise agreed in writing, Grantor shall have no right to withdraw amounts on deposit
in any collateral account.


 


(ii) Agent may, by notice
to Grantor, require Grantor to direct each of its account debtors to make payment directly to a special lockbox to be under the
control of Agent. Grantor hereby authorizes and directs Agent to deposit all checks, drafts and cash payments received in said
lockbox into the collateral account established as set forth above.


 


(iii) Agent may notify
any account debtor, or any other Person obligated to pay any amount due, that such chattel paper, general intangible, Account,
or other right to payment has been assigned or transferred to Agent for security and shall be paid directly to Agent. At any time
after Secured Party or Grantor gives such notice to an account debtor or other obligor, Agent, on behalf of the Secured Parties,
may (but need not), in its own name or in Grantor’s name, demand, sue for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any such chattel paper, Account, or other right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor.


 


7. Voting and Distributions.


 


(a) The Secured Parties
agree that unless an Event of Default shall have occurred and be continuing, Grantor may, to the extent Grantor has such right
as a holder of the Collateral consisting of securities, other equity interests or indebtedness owed by any obligor, vote and give
consents, ratifications and waivers with respect thereto, except to the extent that, in Agent’s reasonable judgment, any
such vote, consent, ratification or waiver would detract from the value thereof as Collateral or which would be inconsistent with
or result in any violation of any provision of this Agreement or any other Notes Amendment Documents, and from time to time, upon
request from Grantor, Agent shall deliver to Grantor suitable proxies so that Grantor may cast such votes, consents, ratifications
and waivers.


 




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(b) The Secured Parties
agree that Grantor may, unless an Event of Default shall have occurred and be continuing, receive and retain all dividends and
other distributions with respect to the Collateral consisting of securities, other equity interests or indebtedness owed by any
obligor.


 


8. Covenants.
Grantor covenants as follows:


 


(a) Grantor will not,
without providing at least 30 days’ prior written notice to Agent, change its legal name, identity, type of organization,
jurisdiction of organization, corporate structure, location of its chief executive office or its principal place of business or
its organizational identification number. Grantor will, prior to any change described in the preceding sentence, take all actions
reasonably requested by Agent to maintain the perfection and priority of Agent’s Lien in the Collateral.


 


(b) Grantor will keep
the Collateral, to the extent not delivered to Agent pursuant to Section 4, at those locations listed on Schedule 3 attached
hereto and Grantor will not remove the Collateral from such locations without providing at least 10 days’ prior written notice
to Agent except for (a) vehicles and equipment out for repair or in service in the field, and (b) inventory in transit in the ordinary
course of business.


 


(c) Grantor will, at
its own cost and expense, defend title to the Collateral and the Lien of Agent therein against the claim of any person claiming
against or through Grantor and shall maintain and preserve such perfected Lien for so long as this Agreement shall remain in effect.


 


(d) Grantor will not
grant, create, permit or suffer to exist any Lien, option, right of first offer, encumbrance or other restriction or limitation
of any nature whatsoever on, any of the Collateral or any interest therein except for Permitted Liens.


 


(e) Grantor will not
sell, lease, or otherwise dispose of any of the Collateral except for in the ordinary course of business or as otherwise permitted
by the Notes Amendment Documents.


 


(f) Grantor will keep
the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon. Grantor
will permit Agent, or its designee, to inspect the Collateral at any reasonable time, wherever located.


 


(g) Grantor will pay
promptly when due all taxes, assessments, governmental charges, and levies upon the Collateral or incurred in connection with the
use or operation of the Collateral or incurred in connection with this Agreement.


 


(h) Grantor will continue
to operate its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with
all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances.


 


9. Agent Appointed
Attorney-in-Fact. Subject to the terms of the Intercreditor Agreement, Grantor hereby appoints Agent as Grantor’s attorney-in-fact,
with full authority in the place and stead of Grantor and in the name of Grantor or otherwise, from time to time during the continuance
of an Event of Default in Agent’s discretion to take any action and to execute any instrument which Agent may deem necessary
or advisable to accomplish the purposes of this Agreement (but Agent shall not be obligated to and shall have no liability to Grantor
or any third party for failure to do so or take action). This appointment, being coupled with an interest, shall be irrevocable.
Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof.


 




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10. Agent May Perform.
If Grantor fails to perform any obligation contained in this Agreement, upon ten (10) days after failure of the Grantor to perform
such obligation (unless such failure may cause a material impairment to the value of the Collateral or the Agent’s Liens,
in which case, immediately upon such failure of the Grantor), Agent may itself perform, or cause performance of, such obligation,
and the expenses of Agent or any other Secured Party incurred in connection therewith shall be payable by Grantor; provided
that Agent or any other Secured Party shall not be required to perform or discharge any obligation of Grantor. For the avoidance
of doubt, the Senior Agent has also been appointed Grantor’s attorney-in-fact as set forth in Section 9 above and Agent’s
rights to act as attorney-in-fact as set forth in Sections 9 and this Section 10 are limited by the terms of the Intercreditor
Agreement.


 


11. Reasonable Care.
Agent shall have no duty with respect to the care and preservation of the Collateral beyond the exercise of reasonable care. Agent
shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which Agent accords its own property, it being understood that Agent shall not
have any responsibility for (a) ascertaining or taking action with respect to any claims, the nature or sufficiency of any payment
or performance by any party under or pursuant to any agreement relating to the Collateral or other matters relative to any Collateral,
whether or not Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against
any parties with respect to any Collateral. Nothing set forth in this Agreement, nor the exercise by Agent, on behalf of the Secured
Parties, of any of the rights and remedies hereunder, shall relieve Grantor from the performance of any obligation on Grantor’s
part to be performed or observed in respect of any of the Collateral.


 


12. Remedies Upon
Default. If any Event of Default shall have occurred and be continuing:


 


(a) Agent, without
any other notice to or demand upon Grantor, may assert all rights and remedies of a secured party under the UCC or other applicable
law, including the right to take possession of, hold, collect, sell, lease, deliver, grant options to purchase or otherwise retain,
liquidate or dispose of all or any portion of the Collateral, subject to the terms of the Intercreditor Agreement. If notice prior
to disposition of the Collateral or any portion thereof is necessary under applicable law, written notice mailed to Grantor at
its notice address as provided in Section 19 hereof 10 days prior to the date of such disposition shall constitute reasonable notice,
but notice given in any other reasonable manner shall be sufficient. So long as the sale of the Collateral is made in a commercially
reasonable manner, Agent may sell such Collateral on such terms and to such purchaser(s) as Agent, on behalf of the Secured Parties,
in its absolute discretion may choose, without assuming any credit risk and without any obligation to advertise or give notice
of any kind other than that necessary under applicable law. Without precluding any other methods of sale, the sale of the Collateral
or any portion thereof shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial
practices of creditors disposing of similar property. At any sale of the Collateral, if permitted by applicable law, Agent or any
other Secured Party may be the purchaser, licensee, assignee or recipient of the Collateral or any part thereof and shall be entitled,
for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold,
assigned or licensed at such sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price
of the Collateral or any part thereof payable at such sale. To the extent permitted by applicable law, Grantor waives all claims,
damages and demands it may acquire against Agent or any other Secured Party arising out of the exercise by it of any rights hereunder.
Grantor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security
for the Secured Obligations or otherwise. At any such sale, unless prohibited by applicable law, Agent or any other Secured Party
or any custodian may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption.
None of Agent, any other Secured Party or any custodian shall be liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing, nor shall it be under any obligation to take any action whatsoever with regard thereto.


 




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(b) All rights of Grantor
to (i) exercise the voting and other consensual rights it would otherwise be entitled to exercise pursuant to Section 7(a) and
(ii) receive the dividends and other distributions which it would otherwise be entitled to receive and retain pursuant to Section
7(b), shall immediately cease, and all such rights shall thereupon become vested in Agent, on behalf of the Secured Parties, which
shall have the sole right to exercise such voting and other consensual rights and receive and hold such dividends and other distributions
as Collateral.


 


(c) Any cash held by
Agent as Collateral and all cash Proceeds received by Agent in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied in whole or in part by Agent to the payment of expenses incurred by Secured
Party in connection with the foregoing, including reasonable attorneys’ fees, and the balance of such proceeds shall be applied
or set off against all or any part of the Secured Obligations in such order set forth in the Transaction Documents. Any surplus
of such cash or cash Proceeds held by Agent and remaining after payment in full of all the Secured Obligations shall be paid over
to Grantor or to whomsoever may be lawfully entitled to receive such surplus. Grantor shall remain liable for any deficiency if
such cash and the cash Proceeds of any sale or other realization of the Collateral are insufficient to pay the Secured Obligations
and the fees and other charges of any attorneys employed by Agent or any other Secured Party to collect such deficiency.


 


(d) If Agent shall
determine to exercise its rights to sell all or any of the Collateral pursuant to this Section, Grantor agrees that, upon request
of Agent, Grantor will, at its own expense, do or cause to be done all such acts and things as may be necessary to make such sale
of the Collateral or any part thereof valid and binding and in compliance with applicable law.


 




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13. Standards for
Exercising Rights and Remedies. To the extent that applicable law imposes duties on Agent to exercise remedies in a commercially
reasonable manner, Grantor acknowledges and agrees that it is not commercially unreasonable for Agent (a) to fail to incur expenses
reasonably deemed significant by Agent to prepare Collateral for disposition or otherwise to fail to complete raw material or work
in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access
to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents
for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against
account debtors or other persons obligated on Collateral or to fail to remove liens or encumbrances on or any adverse claims against
Collateral, (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications
or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether
or not in the same business as the Company, for expressions of interest in acquiring all or any portion of the Collateral, (g)
to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a
specialized nature, (h) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i)
to dispose of assets in wholesale rather than retail markets, (j) to decline to provide credit to any potential purchaser of the
Collateral in connection with Agent’s disposition of the Collateral, (k) to disclaim disposition warranties, (l) to purchase
insurance or credit enhancements to insure Agent against risks of loss, collection or disposition of Collateral or to provide to
Agent a guaranteed return from the collection or disposition of Collateral, or (m) to the extent deemed appropriate by Agent, to
obtain the services of other brokers, investment bankers, consultants and other professionals to assist Agent in the collection
or disposition of any of the Collateral. Grantor acknowledges that the purpose of this Section is to provide non-exhaustive indications
of what actions or omissions by Agent would satisfy Agent’s duties under the UCC in Agent’s exercise of remedies against
the Collateral and that other actions or omissions by Agent shall not be deemed to fail to satisfy such duties solely on account
of not being indicated in this Section. Without limitation upon the foregoing, nothing contained in this Section shall be construed
to grant any rights to Grantor or to impose any duties on Agent that would not have been granted or imposed by this Agreement or
by applicable law in the absence of this Section.


 


14. No Waiver and
Cumulative Remedies. Agent or any other Secured Party shall not by any act (except by a written instrument pursuant to Section
18), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any
default or Event of Default. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies
provided by law.


 


15. Security Interest
Absolute. All rights of Agent, the other Secured Parties and Liens hereunder, and all Secured Obligations of Grantor hereunder,
shall be absolute and unconditional irrespective of: (a) any illegality or lack of validity or enforceability of any Secured Obligation
or any related agreement or instrument; (b) any change in the time, place or manner of payment of, or in any other term of, the
Secured Obligations, or any rescission, waiver, amendment or other modification of the Notes Amendment Documents, including any
increase in the Secured Obligations resulting from any extension of additional credit or otherwise; (c) any taking, exchange, substitution,
release, impairment or non-perfection of any Collateral or any other collateral, or any taking, release, impairment, amendment,
waiver or other modification of any guaranty, for all or any of the Secured Obligations; (d) any manner of sale, disposition or
application of proceeds of any Collateral or any other collateral or other assets to all or part of the Secured Obligations; (e)
any default, failure or delay, willful or otherwise, in the performance of the Secured Obligations; (f) any defense, set-off or
counterclaim (other than a defense of payment or performance) that may at any time be available to, or be asserted by, Grantor
against the Secured Parties; or (g) any other circumstance (including any statute of limitations) or manner of administering the
Amended Notes or any existence of or reliance on any representation by Secured Parties that might vary the risk of Grantor or otherwise
operate as a defense available to, or a legal or equitable discharge of, Grantor or any other grantor, guarantor or surety.


 




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16. Continuing Security
Interest; Further Actions. This Agreement creates a continuing Lien in the Collateral and shall (a) subject to Section 17,
remain in full force and effect until payment and performance in full of the Secured Obligations, (b) be binding upon Grantor,
its successors and assigns, and (c) inure to the benefit of Secured Parties and their successors, transferees and assigns; provided
that Grantor may not assign or otherwise transfer any of its rights or obligations under this Agreement without Agent’s
prior written consent.


 


17. Termination; Release.
On the date on which all Principal, accrued Interest, and other amounts at any time owed on the Notes Amendment Documents have
been paid in full, this Agreement will terminate automatically without any delivery of any instrument or performance of any act
by any party, except that provisions that by their terms survive the termination of the Notes Amendment Documents will so survive.
Upon such termination, Agent will, at the request and expense of Grantor, (a) duly assign, transfer and deliver to or at the direction
of Grantor (without recourse and without any representation or warranty) such of the Collateral as may then remain in the possession
of Agent, together with any monies at the time held by Agent hereunder, and (b) execute and deliver to Grantor a proper instrument
or instruments acknowledging the satisfaction and termination of this Agreement.


 


18. Amendments.
None of the terms or provisions of this Agreement may be amended, modified, supplemented, terminated or waived, and no consent
to any departure by Grantor therefrom shall be effective unless the same shall be in writing and signed by Agent and Grantor, and
then such amendment, modification, supplement, waiver or consent shall be effective only in the specific instance and for the specific
purpose for which made or given.


 


19. Notices. All
notices, requests and demands to or upon any party hereto shall be given in the manner and become effective as stipulated in the
Amendment Agreement. Regardless of the manner in which notice is provided, notices may be sent to Agent at the Agent’s notice
information set forth in the signature pages hereof and to Grantor at the Grantor’s notice information set forth in the signature
pages hereof or to such other address or telephone number as any party may give to the other for such purpose in accordance with
this paragraph.


 


20. Headings.
The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.


 


21. Counterparts;
Integration; Effectiveness. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in counterparts
(and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together
shall constitute a single contract. This Agreement and the other Notes Amendment Documents constitute the entire contract among
the parties with respect to the subject matter of the Notes Amendment Documents and supersede all previous agreements and understandings,
oral or written, with respect thereto. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or
in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart
of this Agreement.


 




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22. Governing Law;
Jurisdiction; Etc.


 


(a) The laws of the
State of New York will govern this Agreement and any claim, controversy, dispute or cause of action (whether in contract or tort
or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby and thereby.


 


(b) Grantor irrevocably
and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind whatsoever, whether in law
or equity, or whether in contract or tort or otherwise, against the Secured Parties in any way relating to this Agreement or the
transactions contemplated hereby, in any forum other than the courts of the State of New York sitting in the city of New York,
borough of Manhattan, and of the United States District Court of the Southern District of New York, and any appellate court from
any thereof, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees
that any such action, litigation or proceeding may be brought in any such New York State court or, to the fullest extent permitted
by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation
or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided
by law. Nothing herein shall affect any right that the Secured Parties may otherwise have to bring any action or proceeding relating
to this Agreement against Grantor or its properties in the courts of any jurisdiction.


 


(c) Grantor irrevocably
and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have
to the laying of venue of any action or proceeding arising out of or relating to this Agreement in any such court referred to in
Section 22(b). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any such court.


 


(d) Grantor irrevocably
consents to the service of process in the manner provided for notices in Section 19 and agrees that nothing herein will affect
the right of any party hereto to serve process in any other manner permitted by applicable law.


 


23. Waiver of Jury
Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY. EACH PARTY HERETO (A) CERTIFIES THAT NO AGENT, ATTORNEY, REPRESENTATIVE
OR ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER
IN THE EVENT OF LITIGATION, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
AND THE OTHER NOTES AMENDMENT DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.


 




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24. Incorporation
of Recitals.  Each of the Recitals set forth above are true and correct and are incorporated herein and made a part of this
Agreement.


 


25. Inconsistency
with Intercreditor Agreement. In the event of any conflict between the terms of this Agreement and the Intercreditor Agreement,
the Intercreditor Agreement shall control.


 


[signature page to follow] 


 




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The parties have executed
this Security Agreement as of the date set forth in the introductory paragraph.


 


	 	AGENT:
	 	 
	 	CORTLAND PRODUCTS CORP., as Agent
	 	 	 
	 	By:	/s/ Matthew Trybula
	 	Print Name:	Matthew Trybula
	 	Title:	Associate Counsel
	 	 	 
	 	225 W Washington Street, 9th Floor
	 	Chicago, IL 60606
	 	 	 
	 	GRANTOR:	 
	 	 	 
	 	PACIFIC ETHANOL CENTRAL, LLC
	 	 	 
	 	By:	/s/ Neil M. Koehler
	 	Print Name:	Neil M. Koehler
	 	Title:	President and Chief Executive Officer
	 	 	 
	 	c/o Pacific Ethanol, Inc.
	 	400 Capital Mall, Suite 2060
	 	Sacramento, California 95814


 


Signature Page to Noteholder Security Agreement
(Noteholders - PEC) 


 




     


     


    

 


SCHEDULE 1


 


COMMERCIAL TORT CLAIMS


 


None.


 


Schedule 1 to Security Agreement 


 




     


     


    

 


SCHEDULE 2


 


DEPOSIT ACCOUNT


 


	Depository Bank	 	Account Holder	 	Account Number	 	Account Name
	Bank of America	 	Pacific Ethanol Central, LLC	 	325000605601	 	Pacific Ethanol Central, LLC


 


Schedule 2 to Security Agreement 


 




     


     


    

 


SCHEDULE 3


 


COLLATERAL LOCATIONS


 


400 Capitol Mall, Suite 2060, Sacramento,
California 95814


 





Schedule 3 to Security Agreement